8-K

t

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 8-K

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

April 26, 2010

Date of Report (Date of earliest event reported)

Arch Capital Group Ltd.

(Exact name of registrant as specified in its charter)

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

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

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code:

(441) 278-9250

N/A

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

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

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

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

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

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

ITEM 2.02           Results of Operations and Financial Condition.

On April 26, 2010, Arch Capital Group Ltd. issued a press release reporting its earnings and the availability of its first quarter financial supplement for the three month period ended March 31, 2010.  The press release and financial supplement are attached to this Current Report on Form 8-K as Exhibit 99.1 and Exhibit 99.2, respectively, and are incorporated herein by reference.

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

ITEM 9.01           Exhibits.

EXHIBIT NO.	DESCRIPTION
99.1	Press Release dated April 26, 2010 announcing the earnings of Arch Capital Group Ltd. for the three month period ended March 31, 2010
99.2	First Quarter 2010 Financial Supplement

2

SIGNATURES

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

	ARCH CAPITAL GROUP LTD.
Date: April 26, 2010	By:	/s/ W. Preston Hutchings
		Name: W. Preston Hutchings
		Title: Senior Vice President and Chief Investment Officer

3

EXHIBIT INDEX

EXHIBIT NO.	DESCRIPTION
99.1	Press Release dated April 26, 2010 announcing the earnings of Arch Capital Group Ltd. for the three month period ended March 31, 2010
99.2	First Quarter 2010 Financial Supplement

4

EX-99.1

Exhibit 99.1

ARCH CAPITAL GROUP LTD.

Earnings Release Supplement

As of March 31, 2010

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 2010 FIRST QUARTER RESULTS

HAMILTON, BERMUDA, April 26, 2010 — Arch Capital Group Ltd. (NASDAQ: ACGL) reports that net income available to common shareholders for the 2010 first quarter was $210.5 million, or $3.79 per share, compared to $139.9 million, or $2.24 per share, for the 2009 first quarter. The Company also reported after-tax operating income available to common shareholders of $98.7 million, or $1.78 per share, for the 2010 first quarter, compared to $169.0 million, or $2.70 per share, for the 2009 first quarter. All earnings per share amounts discussed in this release are on a diluted basis.

The Company’s book value per common share was $76.91 at March 31, 2010, a 5.3% increase from $73.01 per share at December 31, 2009. The growth in book value per common share was generated by operating income and investment returns. The Company’s after-tax operating income available to common shareholders represented a 9.8% annualized return on average common equity for the 2010 first quarter, compared to 21.1% for the 2009 first quarter. After-tax operating income available to common shareholders, a non-GAAP measure, is defined as net income available to common shareholders, excluding net realized gains or losses, net impairment losses recognized in earnings, equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses, net of income taxes. See page 7 for a further discussion of after-tax operating income available to common shareholders and Regulation G.

The following table summarizes the Company’s underwriting results:

	Three Months Ended
	March 31,
(U.S. dollars in thousands)	2010			2009
Gross premiums written	$	953,687		$	1,024,971
Net premiums written	767,754			822,863
Net premiums earned	669,917			700,564
Underwriting income	23,918			93,389
Combined ratio	96.4		%	86.7		%

1

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

	Three Months Ended
	March 31,
(U.S. dollars in thousands, except share data)	2010			2009
After-tax operating income available to common shareholders	$	98,731		$	169,001
Net realized gains (losses), net of tax	45,503			(9,111		)
Net impairment losses recognized in earnings, net of tax	(1,606		)	(36,134		)
Equity in net income (loss) of investment funds accounted for using the equity method, net of tax	29,050			(9,581		)
Net foreign exchange gains, net of tax	38,855			25,694
Net income available to common shareholders	$	210,533		$	139,869
Diluted per common share results:
After-tax operating income available to common shareholders	$	1.78		$	2.70
Net realized gains (losses), net of tax	0.82			(0.14		)
Net impairment losses recognized in earnings, net of tax	(0.03		)	(0.58		)
Equity in net income (loss) of investment funds accounted for using the equity method, net of tax	0.52			(0.15		)
Net foreign exchange gains, net of tax	0.70			0.41
Net income available to common shareholders	$	3.79		$	2.24
Weighted average common shares and common share equivalents outstanding — diluted	55,513,827			62,559,969

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 2010 first quarter, the combined ratio of the Company’s insurance and reinsurance subsidiaries consisted of a loss ratio of 63.9% and an underwriting expense ratio of 32.5%, compared to a loss ratio of 57.2% and an underwriting expense ratio of 29.5% for the 2009 first quarter. The loss ratio of 63.9% for the 2010 first quarter was comprised of 50.3 points of paid losses, 1.7 points related to reserves for reported losses and 11.9 points related to incurred but not reported reserves. The 2010 first quarter loss ratio included approximately 8.7 points related to current accident year catastrophic events, primarily related to the Chilean earthquake, European Windstorm Xynthia and the Australian hailstorms and floods.

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. Any estimates and assumptions made as part of the reserving process could prove to be inaccurate due to several factors, including the fact that relatively limited historical information has been reported to the Company through March 31, 2010. 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 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 a material amount of common stock or preferred stock of any publicly-traded issuers or investments in

2

hedge funds or private equity funds. The average credit quality rating of the portfolio remained at “AA+” at March 31, 2010 and the average effective duration was 2.77 years at March 31, 2010, compared to 2.87 years at December 31, 2009.

Including the effects of foreign exchange, total return on the Company’s investment portfolio was approximately 1.58% for the 2010 first quarter, compared to 1.09% for the 2009 first quarter. Excluding foreign exchange, total return was 1.98% for the 2010 first quarter, compared to 1.23% for the 2009 first quarter.

Net investment income for the 2010 first quarter was $93.0 million, or $1.67 per share, compared to $93.6 million, or $1.56 per share, for the 2009 fourth quarter and $95.9 million, or $1.53 per share, for the 2009 first quarter. The comparability of net investment income between the 2010 and 2009 periods was influenced by the Company’s share repurchase program described below. The pre-tax investment income yield was 3.41% for the 2010 first quarter, compared to 3.45% for the 2009 fourth quarter and 3.82% for the 2009 first quarter, reflecting the lower prevailing interest rates available in the market.

Investment funds accounted for using the equity method, which are primarily related to the Company’s investments in bank loan funds, totaled $405.6 million at March 31, 2010, compared to $391.9 million at December 31, 2009. The Company recorded $29.1 million of net income related to investment funds accounted for using the equity method for the 2010 first quarter, compared to net losses of $9.6 million for the 2009 first quarter.

Consolidated cash flow provided by operating activities for the 2010 first quarter was $184.6 million, compared to $294.8 million for the 2009 first quarter. Comparability between the two periods was affected by an unearned premium portfolio transfer which lowered the 2010 first quarter cash flow by $15 million but increased 2009 first quarter cash flow by $25 million. The remaining decline in cash flow in the 2010 first quarter reflected a lower level of premium collections and an increase in paid losses as the Company’s insurance and reinsurance loss reserves continue to mature.

For the 2010 first quarter, the Company’s effective tax rates on income before income taxes and pre-tax operating income were 3.0% and 4.3%, respectively, compared to 6.1% and 3.3%, respectively, for the 2009 first quarter. The Company’s effective tax rates may fluctuate from period to period based on the relative mix of income reported by jurisdiction primarily due to the varying tax rates in each jurisdiction. The Company currently expects that its annual effective tax rate on pre-tax operating income available to common shareholders for the year ended December 31, 2010 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 $3.0 million of federal excise taxes in the 2010 first quarter, compared to $3.3 million in the 2009 first quarter. Such amounts are reflected as acquisition expenses in the Company’s consolidated statements of income.

Net foreign exchange gains for the 2010 first quarter of $38.6 million consisted of net unrealized gains of $37.9 million and net realized gains of $0.7 million, compared to net foreign exchange gains for the 2009 first quarter of $25.2 million which consisted of net unrealized gains of $25.9 million and net realized losses of $0.7 million. The 2010 first quarter net foreign exchange gains primarily resulted from the strengthening of the U.S. Dollar against the Euro and British Pound during the period. 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. Historically, the Company has held 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. As a result of the current financial and economic environment as well as the potential for additional investment returns, the Company may not match a portion of its projected liabilities in foreign currencies with investments

3

in the same currencies, which could increase the Company’s exposure to foreign currency fluctuations and increase the volatility in the Company’s shareholders’ equity.

In November 2009, the board of directors of ACGL authorized the Company to invest up to an additional $1.0 billion in ACGL’s common shares through the share repurchase program. Repurchases under the program may be effected from time to time in open market or privately negotiated transactions through December 2011. During the 2010 first quarter, the Company repurchased 2.5 million common shares for an aggregate purchase price of $181.3 million. Since the inception of the share repurchase program through March 31, 2010, ACGL has repurchased 24.5 million common shares for an aggregate purchase price of $1.69 billion. At March 31, 2010, $810.1 million of repurchases were available under the share repurchase program.

At March 31, 2010, the Company’s capital of $4.78 billion consisted of $300.0 million of senior notes, representing 6.3% of the total, $100.0 million of revolving credit agreement borrowings due in August 2011, representing 2.1% of the total, $325.0 million of preferred shares, representing 6.8% of the total, and common shareholders’ equity of $4.05 billion, representing the balance. At December 31, 2009, the Company’s capital of $4.72 billion consisted of $300.0 million of senior notes, representing 6.4% of the total, $100.0 million of revolving credit agreement borrowings due in August 2011, representing 2.1% of the total, $325.0 million of preferred shares, representing 6.9% of the total, and common shareholders’ equity of $4.0 billion, representing the balance.

The Company will hold a conference call for investors and analysts at 11:00 a.m. Eastern Time on Tuesday, April 27, 2010. 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 April 27 at 2:00 p.m. Eastern Time until May 4, 2010 at midnight Eastern Time. To access the replay, domestic callers should dial 888-286-8010 (passcode 52643811), and international callers should dial 617-801-6888 (passcode 52643811).

Please refer to the Company’s Financial Supplement dated March 31, 2010, 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. From time to time, the Company posts additional financial information and presentations to its website, including information with respect to its subsidiaries. Investors and other recipients of this information are encouraged to check the Company’s website regularly, including the Investor Relations — Events & Presentations section of the Company’s website at http://www.archcapgroup.bm/presentations.aspx for additional information regarding the Company.

Arch Capital Group Ltd., a Bermuda-based company with approximately $4.78 billion in capital at March 31, 2010, provides insurance and reinsurance on a worldwide basis through its wholly owned subsidiaries.

4

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;

·developments in the world’s financial and capital markets and the Company’s access to such markets;

·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 March 31, 2010;

·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;

5

·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, including legislative or regulatory developments that may adversely affect the market value of the Company’s investments;

·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.

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.

6

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.

7

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

SUPPLEMENTAL FINANCIAL INFORMATION

Book Value Per Common Share

	March 31,			December 31,
(U.S. dollars in thousands, except share data)	2010			2009
Calculation of book value per common share:
Total shareholders’ equity	$	4,378,757		$	4,323,349
Less preferred shareholders’ equity	(325,000		)	(325,000		)
Common shareholders’ equity	$	4,053,757		$	3,998,349
Common shares outstanding (1)	52,709,934			54,761,678
Book value per common share	$	76.91		$	73.01

(1)Excludes the effects of 4,595,975 and 5,016,104 stock options and 258,213 and 261,012 restricted stock units outstanding at March 31, 2010 and December 31, 2009, respectively.

Share Repurchase Activity

	Three Months Ended				Cumulative
	March 31,				March 31,
(U.S. dollars in thousands, except share data)	2010		2009		2010
Effect of share repurchases:
Aggregate cost of shares repurchased	$	181,272	$	1,552	$	1,689,869
Shares repurchased	2,529,913		33,305		24,501,025
Average price per share repurchased	$	71.65	$	46.60	$	68.97
Estimated net accretive impact on ending book value per common share (1)	$	0.25	$	0.01	$	2.52
Estimated net accretive impact on diluted earnings per share (2)	$	0.36	$	0.40

(1)As the average price per share repurchased during the 2010 and 2009 periods and cumulative through March 31, 2010 was lower than the ending book value per common share, the repurchase of shares increased ending book value per common share.

(2)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.

8

Investment Information

	Three Months Ended
	March 31,
(U.S. dollars in thousands, except share data)	2010			2009
Components of net investment income:
Fixed maturities and short-term investments	$	97,891		$	98,198
Securities lending transactions	67			1,018
Other	418			547
Gross investment income	98,376			99,763
Investment expense	(5,404		)	(3,881		)
Net investment income	$	92,972		$	95,882
Per share	$	1.67		$	1.53
Investment income yield (at amortized cost):
Pre-tax	3.41		%	3.82		%
After-tax	3.30		%	3.70		%
Cash flow from operations	$	184,623		$	294,803

	March 31,			December 31,
(U.S. dollars in thousands)	2010			2009
Investable assets:
Fixed maturities available for sale, at market value	$	9,295,680		$	9,391,926
Fixed maturities pledged under securities lending agreements, at market value (1)	181,871			208,826
Total fixed maturities	9,477,551			9,600,752
Short-term investments available for sale, at market value	669,798			571,490
Short-term investments pledged under securities lending agreements, at market value (1)	2,350			3,993
Cash	338,708			334,571
TALF investments, at market value (2)	406,997			250,265
Other investments
Fixed income mutual funds	70,204			63,146
Privately held securities and other	193,404			109,027
Investment funds accounted for using the equity method (3)	405,584			391,869
Securities transactions entered into but not settled at the balance sheet date	(2,444		)	50,790
Total investable assets (1)	$	11,562,152		$	11,375,903
Fixed income portfolio (1):
Average effective duration (in years)	2.77			2.87
Average credit quality	AA+			AA+
Imbedded book yield (before investment expenses)	3.57		%	3.64		%

(1)This table excludes the collateral received and reinvested in fixed maturities, short term investments and securities purchased under agreements to resell, and includes the fixed maturities and short-term investments pledged under securities lending agreements, at market value.

(2)The Federal Reserve’s Term Asset-Backed Securities Loan Facility (“TALF”) provides secured financing for certain asset-backed securities and legacy commercial mortgage-backed securities. TALF financing is non-recourse to the Company, is collateralized by the purchased securities and provides financing for the purchase price of the securities, less a ‘haircut’ that varies based on the type of collateral. The Company can deliver the collateralized securities to the Federal Reserve in full defeasance of the loan.

(3)Changes in the carrying value of investments accounted for using the equity method 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.

9

Selected Information on Losses and Loss Adjustment Expenses

	Three Months Ended March 31,
(U.S. dollars in thousands)	2010			2009
Components of losses and loss adjustment expenses incurred
Paid losses and loss adjustment expenses	$	336,662		$	318,541
Increase in unpaid losses and loss adjustment expenses	91,389			82,001
Total losses and loss adjustment expenses	$	428,051		$	400,542
Estimated net (favorable) adverse development in prior year loss reserves, net of related adjustments
Net impact on underwriting results:
Insurance	$	6,406		$	(8,178	)
Reinsurance	(36,097		)	(39,693		)
Total	$	(29,691	)	$	(47,871	)
Impact on losses and loss adjustment expenses:
Insurance	$	3,830		$	(9,126	)
Reinsurance	(36,504		)	(42,016		)
Total	$	(32,674	)	$	(51,142	)
Impact on acquisition expenses:
Insurance	$	2,576		$	948
Reinsurance	407			2,323
Total	$	2,983		$	3,271
Impact on combined ratio:
Insurance	1.5		%	(2.0		)%
Reinsurance	(15.0		)%	(13.3		)%
Total	(4.4		)%	(6.8		)%
Impact on loss ratio:
Insurance	0.9		%	(2.3		)%
Reinsurance	(15.2		)%	(14.0		)%
Total	(4.9		)%	(7.3		)%
Impact on acquisition expense ratio:
Insurance	0.6		%	0.3		%
Reinsurance	0.2		%	0.7		%
Total	0.5		%	0.5		%
Estimated net losses incurred from current accident year catastrophic events (1)
Insurance	$	23,962		$	—
Reinsurance	34,133			8,012
Total	$	58,095		$	8,012
Impact on loss ratio:
Insurance	5.6		%	0.0		%
Reinsurance	14.2		%	2.7		%
Total	8.7		%	1.1		%

(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 details regarding the Company’s operating segments, please refer to the Company’s Financial Supplement dated March 31, 2010 on the Company’s website at http://www.archcapgroup.bm/EarningsReleases.aspx.

Discussion of 2010 First Quarter Performance

Insurance Segment

	Three Months Ended March 31,
(U.S. dollars in thousands)	2010			2009
Gross premiums written	$	633,576		$	638,409
Net premiums written	452,924			441,586
Net premiums earned	429,477			401,097
Underwriting income (loss)	(29,932		)	11,421
Loss ratio	72.6		%	67.3		%
Acquisition expense ratio	15.5		%	14.1		%
Other operating expense ratio	18.8		%	15.7		%
Combined ratio	106.9		%	97.1		%
Catastrophic activity and prior year development:
Current accident year catastrophic events	5.6		%	0.0		%
Net (favorable) adverse development in prior year loss reserves, net of related adjustments	1.5		%	(2.0		)%
Combined ratio excluding such items	99.8		%	99.1		%

Gross premiums written by the insurance segment in the 2010 first quarter were 0.8% lower than in the 2009 first quarter as reductions in commercial aviation and casualty lines of business were partially offset by increases in executive assurance and professional liability business. The reduction in commercial aviation business primarily resulted from a strategic decision to reduce exposure while the lower level of casualty business was due to underwriting actions relating to the current market environment. Growth in executive assurance and professional liability business primarily resulted from contributions from business written by the insurance segment’s European operations.

Net premiums written increased 2.6%, 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 2010 first quarter were 7.1% higher than in the 2009 first quarter, and reflect changes in net premiums written over the previous five quarters.

The 2010 first quarter loss ratio included 5.6 points for significant current year catastrophic event activity, primarily from the Chilean earthquake in February 2010, while the 2009 first quarter did not include any significant catastrophic activity. Estimated net adverse development, before related adjustments, increased the loss ratio by 0.9 points in the 2010 first quarter, compared to 2.3 points of estimated net favorable development in the 2009 first quarter. The 2010 first quarter reflected adverse development in a small number of high severity casualty claims from the 2003 and 2004 accident years, partially offset by favorable development in short-tail lines which primarily reflected better than expected claims emergence from the 2007 and 2008 accident years. In addition, the 2010 first quarter loss ratio benefitted from a higher contribution of property net premiums earned to the mix of business than in the 2009 first quarter.

The underwriting expense ratio was 34.3% in the 2010 first quarter, compared to 29.8% in the 2009 first quarter. The acquisition expense ratio reflects changes in the form of reinsurance ceded and mix of business compared to the 2009 first quarter. The other operating expense ratio for the 2010 first quarter included 1.4 points of costs incurred which are not currently expected to impact the insurance segment’s operating expense ratio for the balance of 2010 while the 2009 first quarter ratio benefitted from 1.6 points of reductions in compensation costs which were non-recurring.

11

Reinsurance Segment

	Three Months Ended March 31,
(U.S. dollars in thousands)	2010			2009
Gross premiums written	$	323,477		$	390,129
Net premiums written	314,830			381,277
Net premiums earned	240,440			299,467
Underwriting income	53,850			81,968
Loss ratio	48.3		%	43.6		%
Acquisition expense ratio	20.9		%	23.0		%
Other operating expense ratio	8.5		%	6.1		%
Combined ratio	77.7		%	72.7		%
Catastrophic activity and prior year development:
Current accident year catastrophic events	14.2		%	2.7		%
Net (favorable) adverse development in prior year loss reserves, net of related adjustments	(15.0		)%	(13.3		)%
Combined ratio excluding such items	78.5		%	83.3		%

Gross premiums written by the reinsurance segment in the 2010 first quarter were 17.1% lower than in the 2009 first quarter, primarily due to share decreases and non-renewals in property other than property catastrophe business and casualty business, partially offset by growth in the reinsurance segment’s other specialty lines. Net premiums written by the reinsurance segment in the 2010 first quarter were 17.4% lower than in the 2009 first quarter, primarily due to the items noted above. Net premiums earned in the 2010 first quarter were 19.7% lower than in the 2009 first quarter, and reflect changes in net premiums written over the previous five quarters, including the mix and type of business written.

The 2010 first quarter loss ratio included 14.2 points related to current year catastrophic activity, compared to 2.7 points in the 2009 first quarter. Specific 2010 first quarter catastrophic events included the Chilean earthquake, European Windstorm Xynthia and the Australian hailstorms and floods. Estimated net favorable development, before related adjustments, reduced the loss ratio by 15.2 points in the 2010 first quarter, compared to 14.0 points in the 2009 first quarter. The estimated net favorable development in the 2010 first quarter primarily resulted from better than expected claims emergence in property and other short-tail lines, primarily from the 2007 to 2009 underwriting years. The reinsurance segment’s 2010 first quarter loss ratio also reflected an increase of the underwriting profit in its property facultative operations while the 2009 first quarter loss ratio included 1.2 points of losses related to trade credit business.

The underwriting expense ratio was 29.4% in the 2010 first quarter, compared to 29.1% in the 2009 first quarter. The acquisition expense ratio for the 2010 first quarter was 20.9%, compared to 23.0% for the 2009 first quarter. The comparison of the 2010 first quarter and 2009 first quarter acquisition expense ratios is influenced by, among other things, the mix and type of business written and earned and the level of ceding commission income. The increase in the other operating expense ratio primarily resulted from the lower level of net premiums earned in the 2010 first quarter.

12

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

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

	(Unaudited)
	Three Months Ended
	March 31,
	2010			2009
Revenues
Net premiums written	$	767,754		$	822,863
Increase in unearned premiums	(97,837		)	(122,299		)
Net premiums earned	669,917			700,564
Net investment income	92,972			95,882
Net realized gains (losses)	47,782			(5,164		)
Other-than-temporary impairment losses	(2,336		)	(97,422		)
Less investment impairments recognized in other comprehensive income, before taxes	730			61,288
Net impairment losses recognized in earnings	(1,606		)	(36,134		)
Fee income	794			925
Equity in net income (loss) of investment funds accounted for using the equity method	29,050			(9,581		)
Other income	5,978			3,951
Total revenues	844,887			750,443
Expenses
Losses and loss adjustment expenses	428,051			400,542
Acquisition expenses	117,624			126,458
Other operating expenses	106,806			87,116
Interest expense	7,260			5,712
Net foreign exchange gains	(38,601		)	(25,205		)
Total expenses	621,140			594,623
Income before income taxes	223,747			155,820
Income tax expense	6,753			9,490
Net Income	216,994			146,330
Preferred dividends	6,461			6,461
Net income available to common shareholders	$	210,533		$	139,869
Net income per common share
Basic	$	3.97		$	2.32
Diluted	$	3.79		$	2.24
Weighted average common shares and common share equivalents outstanding
Basic	53,039,026			60,313,550
Diluted	55,513,827			62,559,969

13

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

	(Unaudited)
	March 31,		December 31,
	2010		2009
Assets
Investments:
Fixed maturities available for sale, at market value (amortized cost: 2010, $9,129,065; 2009, $9,227,432)	$	9,295,680	$	9,391,926
Short-term investments available for sale, at market value (amortized cost: 2010, $671,902; 2009, $570,469)	669,798		571,489
Investment of funds received under securities lending agreements, at market value (amortized cost: 2010, $182,338; 2009, $96,590)	177,954		91,160
TALF investments, at market value (amortized cost: 2010, $400,347; 2009, $247,192)	406,997		250,265
Other investments (cost: 2010, $251,917; 2009, $162,505)	263,608		172,172
Investment funds accounted for using the equity method	405,584		391,869
Total investments	11,219,621		10,868,881
Cash	338,708		334,571
Accrued investment income	74,214		70,673
Investment in joint venture (cost: $100,000)	102,946		102,855
Fixed maturities and short-term investments pledged under securities lending agreements, at market value	184,221		212,820
Securities purchased under agreements to resell using funds received under securities lending agreements	—		115,839
Premiums receivable	699,385		595,030
Unpaid losses and loss adjustment expenses recoverable	1,643,573		1,659,500
Paid losses and loss adjustment expenses recoverable	67,734		60,770
Prepaid reinsurance premiums	250,841		277,985
Deferred acquisition costs, net	298,371		280,372
Receivable for securities sold	1,427,085		187,171
Other assets	628,407		609,323
Total Assets	$	16,935,106	$	15,375,790
Liabilities
Reserve for losses and loss adjustment expenses	$	7,898,162	$	7,873,412
Unearned premiums	1,495,265		1,433,331
Reinsurance balances payable	114,254		156,500
Senior notes	300,000		300,000
Revolving credit agreement borrowings	100,000		100,000
TALF borrowings, at market value (par: 2010, $346,950; 2009, $218,740)	346,746		217,565
Securities lending payable	189,024		219,116
Payable for securities purchased	1,429,529		136,381
Other liabilities	683,369		616,136
Total Liabilities	12,556,349		11,052,441
Commitments and Contingencies
Shareholders’ Equity
Non-cumulative preferred shares ($0.01 par, issued and outstanding: 13,000,000)	130		130
Common shares ($0.01 par, issued and outstanding: 2010, 52,709,934; 2009, 54,761,678)	527		548
Additional paid-in capital	420,796		578,336
Retained earnings	3,816,342		3,605,809
Accumulated other comprehensive income, net of deferred income tax	140,962		138,526
Total Shareholders’ Equity	4,378,757		4,323,349
Total Liabilities and Shareholders’ Equity	$	16,935,106	$	15,375,790

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 March 31, 2010

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

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

Arch Capital Group Ltd. and Subsidiaries

Table of Contents

			Page(s)
I.	Financial Highlights		1
II.	Consolidated Financial Statements
	a.	Consolidated Statements of Income	2
	b.	Consolidated Balance Sheets	3
	c.	Consolidated Statements of Changes in Shareholders’ Equity	4
	d.	Consolidated Statements of Comprehensive Income	5
	e.	Consolidated Statements of Cash Flows	6
III.	Segment Information
	a.	Overview	7
	b.	Consolidated Segment Underwriting Results	8
	c.	Insurance Segment Underwriting Results	9-10
	d.	Reinsurance Segment Underwriting Results	11-12
IV.	Investment Information
	a.	Investable Asset Summary, Fixed Income Metrics and Credit Quality Distribution	13
	b.	Composition of Fixed Maturities and Analysis of Corporate Exposures	14
	c.	Mortgage Backed, Commercial Mortgage Backed and Asset Backed Securities	15
	d.	Bank Loans	16
V.	Other
	a.	Comments on Regulation G	17
	b.	Operating Income Reconciliation	18
	c.	Share Repurchase Activity	19
	d.	Annualized Operating Return on Average Common Equity	20
	e.	Capital Structure	21

Arch Capital Group Ltd. and Subsidiaries

Cautionary Note Regarding Forward-Looking Statements

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

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

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

Arch Capital Group Ltd. and Subsidiaries

Financial Highlights

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

	Three Months Ended
	March 31,
	2010			2009			Change
Gross premiums written	$	953,687		$	1,024,971		(7.0	)%
Net premiums written	$	767,754		$	822,863		(6.7	)%
Net premiums earned	$	669,917		$	700,564		(4.4	)%
Underwriting income	$	23,918		$	93,389		(74.4	)%
Net investment income	$	92,972		$	95,882		(3.0	)%
Per diluted share	$	1.67		$	1.53		9.2	%
Net income available to common shareholders	$	210,533		$	139,869		50.5	%
Per diluted share	$	3.79		$	2.24		69.2	%
After-tax operating income available to common shareholders (1)	$	98,731		$	169,001		(41.6	)%
Per diluted share	$	1.78		$	2.70		(34.1	)%
Comprehensive income	$	219,430		$	202,060		8.6	%
Cash flow from operations	$	184,623		$	294,803		(37.4	)%
Diluted weighted average common shares and common share equivalents outstanding	55,513,827			62,559,969			(11.3	)%
Underwriting ratios:
Loss ratio	63.9		%	57.2		%	6.7	%
Acquisition expense ratio	17.4		%	17.9		%	(0.5	)%
Other operating expense ratio	15.1		%	11.6		%	3.5	%
Combined ratio	96.4		%	86.7		%	9.7	%
Financial measures:
Growth in book value per common share	5.3		%	6.3		%	(15.6	)%
Annualized operating return on average common equity	9.8		%	21.1		%	(53.6	)%
Total return on investments (2)	1.58		%	1.09		%	49	bps

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

(2) Total return on investments includes net investment income, equity in net income loss of investment funds accounted for using the equity method, net realized gains and losses and the change in unrealized gains and losses generated by the Company’s investment portfolio.  Total return is calculated on a pre-tax basis and before investment expenses and includes the effect of financial market conditions along with foreign currency fluctuations.

1

Arch Capital Group Ltd. and Subsidiaries

Consolidated Statements of Income

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

	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
	2010			2009			2009			2009			2009			2008			2008			2008			2008
Gross premiums written (1)	$	953,687		$	718,712		$	937,328		$	911,920		1,024,971			$	825,465		$	903,533		$	886,926		$	1,053,152
Net premiums written	767,754			519,087			727,308			693,854			822,863			615,574			692,692			686,118			811,342
Net premiums earned	$	669,917		$	708,538		$	734,385		$	699,258		$	700,564		$	698,514		$	733,031		$	705,675		$	708,234
Fee income	794			894			826			817			925			1,456			944			1,238			1,068
Losses and loss adjustment expenses	(428,051		)	(410,360		)	(444,914		)	(398,858		)	(400,542		)	(490,816		)	(548,886		)	(404,625		)	(404,417		)
Acquisition expenses, net	(117,624		)	(120,549		)	(122,739		)	(123,814		)	(126,458		)	(123,231		)	(133,413		)	(119,226		)	(114,639		)
Other operating expenses	(101,118		)	(99,305		)	(93,723		)	(87,779		)	(81,100		)	(93,580		)	(90,192		)	(91,657		)	(91,875		)
Underwriting income (loss)	23,918			79,218			73,835			89,624			93,389			(7,657		)	(38,516		)	91,405			98,371
Net investment income	92,972			93,551			100,213			100,485			95,882			111,745			117,022			117,120			122,193
Net realized gains (losses)	47,782			89,901			70,638			(11,793		)	(5,164		)	(27,704		)	(23,001		)	(1,920		)	48,686
Net impairment losses recognized in earnings	(1,606		)	(4,493		)	(4,643		)	(20,863		)	(36,134		)	(75,169		)	(82,533		)	(10,749		)	(12,711		)
Equity in net income (loss) of investment funds accounted for using the equity method	29,050			32,391			69,119			75,890			(9,581		)	(174,147		)	(1,731		)	19,583			(22,313		)
Other income	5,978			5,428			5,687			4,950			3,951			211			3,067			4,968			4,036
Other expenses	(5,688		)	(6,680		)	(6,020		)	(11,515		)	(6,016		)	(6,805		)	(5,460		)	(10,921		)	(5,312		)
Interest expense	(7,260		)	(7,015		)	(6,001		)	(5,712		)	(5,712		)	(6,285		)	(6,241		)	(5,788		)	(5,524		)
Net foreign exchange gains (losses)	38,601			9,051			(19,755		)	(53,658		)	25,205			51,479			68,395			298			(23,587		)
Income (loss) before income taxes	223,747			291,352			283,073			167,408			155,820			(134,332		)	31,002			203,996			203,839
Income tax (expense) benefit	(6,753		)	(195		)	(2,205		)	(8,818		)	(9,490		)	(2,179		)	1,849			(5,253		)	(7,956		)
Net income (loss)	216,994			291,157			280,868			158,590			146,330			(136,511		)	32,851			198,743			195,883
Preferred dividends	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)
Net income (loss) available to common shareholders	$	210,533		$	284,696		$	274,407		$	152,129		$	139,869		$	(142,972	)	$	26,390		$	192,282		$	189,422
Underwriting Ratios
Loss ratio	63.9		%	57.9		%	60.6		%	57.0		%	57.2		%	70.3		%	74.9		%	57.3		%	57.1		%
Acquisition expense ratio	17.4		%	16.9		%	16.6		%	17.6		%	17.9		%	17.5		%	18.1		%	16.8		%	16.1		%
Other operating expense ratio	15.1		%	14.0		%	12.8		%	12.6		%	11.6		%	13.4		%	12.3		%	13.0		%	13.0		%
Combined ratio	96.4		%	88.8		%	90.0		%	87.2		%	86.7		%	101.2		%	105.3		%	87.1		%	86.2		%
Net premiums written to gross premiums written	80.5		%	72.2		%	77.6		%	76.1		%	80.3		%	74.6		%	76.7		%	77.4		%	77.0		%
Net income (loss) per common share
Basic	$	3.97		$	4.96		$	4.56		$	2.52		$	2.32		$	(2.38	)	$	0.44		$	3.05		$	2.90
Diluted	$	3.79		$	4.75		$	4.39		$	2.43		$	2.24		$	(2.38	)	$	0.42		$	2.92		$	2.78
Weighted average common shares and common share equivalents outstanding
Basic	53,039,026			57,379,974			60,156,219			60,417,391			60,313,550			60,048,258			60,109,932			62,995,550			65,295,516
Diluted	55,513,827			59,910,667			62,533,816			62,626,317			62,559,969			60,048,258			62,830,910			65,748,119			68,019,413

2

Arch Capital Group Ltd. and Subsidiaries

Consolidated Balance Sheets

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

	March 31,		December 31,		September 30,		June 30,			March 31,			December 31,			December 31,
	2010		2009		2009		2009			2009			2008			2007
Assets
Investments:
Fixed maturities available for sale, at market value	$	9,295,680	$	9,391,926	$	9,265,961	$	8,944,110		$	8,540,653		$	8,122,221		$	7,137,998
Short-term investments available for sale, at market value	669,798		571,489		706,157		660,859			749,708			479,586			699,036
Investment of funds received under securities lending agreements, at market value (1)	177,954		91,160		252,500		309,000			378,071			473,766			1,084,906
TALF investments, at market value (2)	406,997		250,265		250,517		—			—			—			—
Other investments	263,608		172,172		154,526		115,260			104,988			109,601			353,694
Investment funds accounted for using the equity method	405,584		391,869		376,381		370,165			293,452			301,027			235,975
Total investments	11,219,621		10,868,881		11,006,042		10,399,394			10,066,872			9,486,201			9,511,609
Cash	338,708		334,571		385,149		336,693			244,037			251,739			239,915
Accrued investment income	74,214		70,673		77,762		70,854			65,365			78,052			73,862
Investment in joint venture	102,946		102,855		101,473		100,656			101,143			98,341			—
Fixed maturities and short-term investments pledged under securities lending agreements, at market value	184,221		212,820		609,334		559,385			559,691			728,065			1,463,045
Securities purchased under agreements to resell using funds received under securities lending agreements (1)	—		115,839		358,996		247,473			172,750			256,428			418,817
Premiums receivable	699,385		595,030		697,806		735,969			720,724			628,951			729,628
Unpaid losses and loss adjustment expenses recoverable	1,643,573		1,659,500		1,709,756		1,740,248			1,710,781			1,729,135			1,609,619
Paid losses and loss adjustment expenses recoverable	67,734		60,770		58,588		53,432			76,312			63,294			132,289
Prepaid reinsurance premiums	250,841		277,985		283,290		283,488			274,578			303,707			480,462
Deferred acquisition costs, net	298,371		280,372		303,826		307,896			313,973			295,192			290,059
Receivable for securities sold	1,427,085		187,171		998,431		1,192,659			1,191,896			105,073			17,359
Other assets	628,407		609,323		592,701		613,788			594,165			592,367			657,603
Total Assets	$	16,935,106	$	15,375,790	$	17,183,154	$	16,641,935		$	16,092,287		$	14,616,545		$	15,624,267
Liabilities
Reserve for losses and loss adjustment expenses	$	7,898,162	$	7,873,412	$	7,879,586	$	7,809,034		$	7,709,317		$	7,666,957		$	7,092,452
Unearned premiums	1,495,265		1,433,331		1,627,519		1,632,989			1,617,431			1,526,682			1,765,881
Reinsurance balances payable	114,254		156,500		159,898		158,974			146,981			138,509			301,309
Senior notes	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			100,000			—
TALF borrowings, at market value (2)	346,746		217,565		219,843		—			—			—			—
Securities lending payable	189,024		219,116		625,706		574,014			574,337			753,528			1,503,723
Payable for securities purchased	1,429,529		136,381		1,197,411		1,432,395			1,433,732			123,309			23,155
Other liabilities	683,369		616,136		612,369		604,561			580,093			574,595			601,936
Total Liabilities	12,556,349		11,052,441		12,722,332		12,611,967			12,461,891			11,183,580			11,588,456
Commitments and Contingencies
Shareholders’ Equity
Non-cumulative preferred shares	130		130		130		130			130			130			130
Common shares	527		548		595		610			605			605			673
Additional paid-in capital	420,796		578,336		917,204		1,006,315			996,417			994,585			1,451,667
Retained earnings	3,816,342		3,605,809		3,321,113		3,046,706			2,894,577			2,693,239			2,428,117
Accumulated other comprehensive income (loss), net of deferred income tax	140,962		138,526		221,780		(23,793		)	(261,333		)	(255,594		)	155,224
Total Shareholders’ Equity	4,378,757		4,323,349		4,460,822		4,029,968			3,630,396			3,432,965			4,035,811
Total Liabilities and Shareholders’ Equity	$	16,935,106	$	15,375,790	$	17,183,154	$	16,641,935		$	16,092,287		$	14,616,545		$	15,624,267
Common shares outstanding (3)	52,709,934		54,761,678		59,524,309		60,980,806			60,532,222			60,511,974			67,318,466
Book value per common share	$	76.91	$	73.01	$	69.48	$	60.76		$	54.61		$	51.36		$	55.12

(1) The Company’s collateral received under securities lending agreements is reinvested in (i) fixed maturities and short-term investments (shown as “Investment of funds received under securities lending agreements, at market value”) and (ii) collateralized borrowings (shown as “Securities purchased under agreements to resell using funds received under securities lending agreements.”

(2) See page 13 for further details on the Company’s participation in the Term Asset-Backed Securities Loan Facility (“TALF”).

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

3

Arch Capital Group Ltd. and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

(U.S. dollars in thousands)

	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
	2010			2009			2009			2009			2009			2008			2008			2008			2008
Non-Cumulative Preferred Shares
Balance at beginning and end of period	$	130		$	130		$	130		$	130		$	130		$	130		$	130		$	130		$	130
Common Shares
Balance at beginning of period	548			595			610			605			605			602			619			646			673
Common shares issued, net	4			4			1			5			0			3			1			2			0
Purchases of common shares under share repurchase program	(25		)	(51		)	(16		)	(0		)	(0		)	—			(18		)	(29		)	(27		)
Balance at end of period	527			548			595			610			605			605			602			619			646
Additional Paid-in Capital
Balance at beginning of period	578,336			917,204			1,006,315			996,417			994,585			977,059			1,089,636			1,269,821			1,451,667
Common shares issued	14			1,173			0			2,557			0			996			0			3,511			0
Exercise of stock options	16,700			12,380			2,905			705			528			10,593			4,146			5,324			3,749
Common shares retired	(181,350		)	(358,611		)	(98,632		)	(2,483		)	(3,760		)	(39		)	(123,510		)	(201,498		)	(190,278		)
Amortization of share-based compensation	7,096			6,199			6,576			9,949			4,318			5,974			6,792			12,911			4,600
Other	—			(9		)	40			(830		)	746			2			(5		)	(433		)	83
Balance at end of period	420,796			578,336			917,204			1,006,315			996,417			994,585			977,059			1,089,636			1,269,821
Retained Earnings
Balance at beginning of period	3,605,809			3,321,113			3,046,706			2,894,577			2,693,239			2,836,211			2,809,821			2,617,539			2,428,117
Cumulative effect of change in accounting principle (1)	—			—			—			—			61,469			—			—			—			—
Balance at beginning of period, as adjusted	3,605,809			3,321,113			3,046,706			2,894,577			2,754,708			2,836,211			2,809,821			2,617,539			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		)
Net income (loss)	216,994			291,157			280,868			158,590			146,330			(136,511		)	32,851			198,743			195,883
Balance at end of period	3,816,342			3,605,809			3,321,113			3,046,706			2,894,577			2,693,239			2,836,211			2,809,821			2,617,539
Accumulated Other Comprehensive Income (Loss)
Balance at beginning of period	138,526			221,780			(23,793		)	(261,333		)	(255,594		)	(297,292		)	(13,973		)	116,408			155,224
Cumulative effect of change in accounting principle (1)	—			—			—			—			(61,469		)	—			—			—			—
Balance at beginning of period, as adjusted	138,526			221,780			(23,793		)	(261,333		)	(317,063		)	(297,292		)	(13,973		)	116,408			155,224
Change in unrealized appreciation (decline) in value of investments, net of deferred income tax	5,240			(83,840		)	248,581			241,588			119,277			64,976			(271,231		)	(131,446		)	(37,577		)
Portion of other-than-temporary impairment losses recognized in other comprehensive income, net of deferred income tax	(730		)	(353		)	(3,217		)	(16,518		)	(61,288		)	—			—			—			—
Foreign currency translation adjustments, net of deferred income tax	(2,074		)	939			209			12,470			(2,259		)	(23,278		)	(12,088		)	1,065			(1,239		)
Balance at end of period	140,962			138,526			221,780			(23,793		)	(261,333		)	(255,594		)	(297,292		)	(13,973		)	116,408
Total Shareholders’ Equity	$	4,378,757		$	4,323,349		$	4,460,822		$	4,029,968		$	3,630,396		$	3,432,965		$	3,516,710		$	3,886,233		$	4,004,544

(1) Adoption of accounting guidance regarding the recognition and presentation of other-than-temporary impairments

4

Arch Capital Group Ltd. and Subsidiaries

Consolidated Statements of Comprehensive Income

(U.S. dollars in thousands)

	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
	2010			2009			2009			2009			2009			2008			2008			2008			2008
Comprehensive Income (Loss)
Net income (loss)	$	216,994		$	291,157		$	280,868		$	158,590		$	146,330		$	(136,511	)	$	32,851		$	198,743		$	195,883
Other comprehensive income (loss), net of deferred income tax
Unrealized holding gains (losses) arising during period	42,847			(8,954		)	300,733			219,648			62,757			(69,067		)	(386,052		)	(139,831		)	12,707
Portion of other-than-temporary impairment losses recognized in other comprehensive income, net of deferred income tax	(730		)	(353		)	(3,217		)	(16,518		)	(61,288		)	—			—			—			—
Reclassification of net realized (gains) losses, net of income taxes, included in net income	(37,607		)	(74,886		)	(52,152		)	21,940			56,520			134,043			114,821			8,385			(50,284		)
Foreign currency translation adjustments	(2,074		)	939			209			12,470			(2,259		)	(23,278		)	(12,088		)	1,065			(1,239		)
Other comprehensive income (loss)	2,436			(83,254		)	245,573			237,540			55,730			41,698			(283,319		)	(130,381		)	(38,816		)
Comprehensive Income (Loss)	$	219,430		$	207,903		$	526,441		$	396,130		$	202,060		$	(94,813	)	$	(250,468	)	$	68,362		$	157,067

5

Arch Capital Group Ltd. and Subsidiaries

Consolidated Statements of Cash Flows

(U.S. dollars in thousands)

	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
	2010			2009			2009			2009			2009			2008			2008			2008			2008
Operating Activities
Net income (loss)	$	216,994		$	291,157		$	280,868		$	158,590		$	146,330		$	(136,511	)	$	32,851		$	198,743		$	195,883
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized (gains) losses	(49,483		)	(70,680		)	(70,612		)	11,831			5,620			28,383			23,916			2,955			(46,502		)
Net impairment losses included in earnings	1,606			4,493			4,643			20,863			36,134			75,169			82,533			10,749			12,711
Equity in net (income) loss of investment funds accounted for using the equity method and other income	(15,012		)	(37,819		)	(74,985		)	(80,662		)	10,428			173,955			(1,336		)	(24,286		)	18,277
Share-based compensation	7,096			6,199			6,576			9,949			4,318			5,974			6,792			12,911			4,600
Changes in:
Reserve for losses and loss adjustment expenses, net of unpaid losses and loss adjustment expenses recoverable	91,247			50,992			79,701			5,151			83,763			226,284			153,860			95,859			182,498
Unearned premiums, net of prepaid reinsurance premiums	96,645			(188,951		)	(6,983		)	(4,775		)	120,867			(75,899		)	(51,494		)	(20,133		)	105,497
Premiums receivable	(116,571		)	99,023			41,108			(916		)	(94,777		)	18,896			115,653			21,679			(148,197		)
Deferred acquisition costs, net	(19,655		)	23,636			4,356			8,513			(18,933		)	10,955			9,229			(8,491		)	(21,319		)
Reinsurance balances payable	(36,669		)	(1,467		)	(85		)	6,187			11,278			(31,791		)	(74,317		)	(67,451		)	19,677
Other liabilities	41,448			(26,439		)	(5,849		)	5,189			2,802			(131,774		)	2,140			7,791			40,490
Other items, net	(33,023		)	33,839			31,381			83,822			(13,027		)	2,460			82,362			25,937			(29,070		)
Net Cash Provided By Operating Activities	184,623			183,983			290,119			223,742			294,803			166,101			382,189			256,263			334,545
Investing Activities
Purchases of:
Fixed maturity investments	(4,597,713		)	(5,221,819		)	(6,675,195		)	(6,336,120		)	(3,037,132		)	(6,221,128		)	(3,878,230		)	(3,253,015		)	(4,055,468		)
Other investments	(185,102		)	(220,068		)	(8,528		)	(9,681		)	(22,670		)	(254,729		)	(38,036		)	(40,837		)	(146,815		)
Proceeds from the sales of:
Fixed maturity investments	4,443,108			5,054,102			6,066,081			5,875,303			2,782,462			5,664,590			3,664,084			3,036,546			3,806,154
Other investments	101,235			236,009			48,085			(4,233		)	24,027			224,466			146,388			24,098			65,226
Proceeds from redemptions and maturities of fixed maturities	212,625			146,480			261,604			208,276			168,758			137,665			127,312			180,437			136,932
Net (purchases) sales of short-term investments	(102,921		)	129,070			(48,395		)	143,819			(204,924		)	312,038			(280,724		)	(13,462		)	74,201
Change in investment of securities lending collateral	30,092			406,590			(51,692		)	323			179,191			196,799			(32,120		)	310,661			274,855
Investment in joint venture	—			—			—			—			—			—			—			(100,000		)	—
Purchases of furniture, equipment and other	(1,803		)	(3,897		)	(4,067		)	(3,872		)	(7,647		)	(2,745		)	(1,772		)	(1,939		)	(3,045		)
Net Cash Provided By (Used For) Investing Activities	(100,479		)	526,467			(412,107		)	(126,185		)	(117,935		)	56,956			(293,098		)	142,489			152,040
Financing Activities
Purchases of common shares under share repurchase program	(181,272		)	(358,656		)	(98,194		)	—			(1,552		)	—			(123,377		)	(199,910		)	(189,843		)
Proceeds from common shares issued, net	10,591			9,194			2,152			308			(1,688		)	10,497			3,334			5,510			2,540
Proceeds from borrowings	214,526			—			269,843			—			—			—			—			100,000			—
Repayments of borrowings	(86,317		)	(1,103		)	(50,000		)	—			—			—			—			—			—
Change in securities lending collateral	(30,092		)	(406,590		)	51,692			(323		)	(179,191		)	(196,799		)	32,120			(310,661		)	(274,855		)
Other	5,061			4,816			88			(1,291		)	742			698			502			616			660
Preferred dividends paid	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)
Net Cash Provided By (Used For) Financing Activities	(73,964		)	(758,800		)	169,120			(7,767		)	(188,150		)	(192,065		)	(93,882		)	(410,906		)	(467,959		)
Effects of exchange rate changes on foreign currency cash	(6,043		)	(2,228		)	1,324			2,866			3,580			(18,350		)	(2,656		)	18			139
Increase (decrease) in cash	4,137			(50,578		)	48,456			92,656			(7,702		)	12,642			(7,447		)	(12,136		)	18,765
Cash beginning of period	334,571			385,149			336,693			244,037			251,739			239,097			246,544			258,680			239,915
Cash end of period	$	338,708		$	334,571		$	385,149		$	336,693		$	244,037		$	251,739		$	239,097		$	246,544		$	258,680
Income taxes paid (received), net	$	704		$	5,021		$	4,234		$	19,887		$	2,231		$	(994	)	$	7,124		$	2,723		$	2,510
Interest paid	$	1,785		$	12,556		$	529		$	11,312		$	184		$	11,802		$	724		$	11,259		$	0

6

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Overview

The Company classifies its businesses into two underwriting segments — insurance and reinsurance — and corporate and other (non-underwriting). The Company’s insurance and reinsurance operating segments each have segment managers who are responsible for the overall profitability of their respective segments and who are directly accountable to the Company’s chief operating decision makers, the Chairman, 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 described in accounting guidance regarding 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. Specialty product lines include: 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 contracts. 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 March 31, 2010 and 2009

(U.S. dollars in thousands)

	Three Months Ended									Three Months Ended
	March 31, 2010									March 31, 2009
	Insurance			Reinsurance			Total			Insurance			Reinsurance			Total
Gross premiums written (1)	$	633,576		$	323,477		$	953,687		$	638,409		$	390,129		1,024,971
Net premiums written	452,924			314,830			767,754			441,586			381,277			822,863
Net premiums earned	$	429,477		$	240,440		$	669,917		$	401,097		$	299,467		$	700,564
Fee income	753			41			794			870			55			925
Losses and loss adjustment expenses	(312,011		)	(116,040		)	(428,051		)	(270,015		)	(130,527		)	(400,542		)
Acquisition expenses, net	(67,431		)	(50,193		)	(117,624		)	(57,623		)	(68,835		)	(126,458		)
Other operating expenses	(80,720		)	(20,398		)	(101,118		)	(62,908		)	(18,192		)	(81,100		)
Underwriting income (loss)	$	(29,932	)	$	53,850		23,918			$	11,421		$	81,968		93,389
Net investment income							92,972									95,882
Net realized gains (losses)							47,782									(5,164		)
Net impairment losses recognized in earnings							(1,606		)							(36,134		)
Equity in net income (loss) of investment funds accounted for using the equity method							29,050									(9,581		)
Other income							5,978									3,951
Other expenses							(5,688		)							(6,016		)
Interest expense							(7,260		)							(5,712		)
Net foreign exchange gains							38,601									25,205
Income before income taxes							223,747									155,820
Income tax expense							(6,753		)							(9,490		)
Net income							216,994									146,330
Preferred dividends							(6,461		)							(6,461		)
Net income available to common shareholders							$	210,533								$	139,869
Underwriting Ratios
Loss ratio	72.6		%	48.3		%	63.9		%	67.3		%	43.6		%	57.2		%
Acquisition expense ratio (2)	15.5		%	20.9		%	17.4		%	14.1		%	23.0		%	17.9		%
Other operating expense ratio	18.8		%	8.5		%	15.1		%	15.7		%	6.1		%	11.6		%
Combined ratio	106.9		%	77.7		%	96.4		%	97.1		%	72.7		%	86.7		%
Net premiums written to gross premiums written	71.5		%	97.3		%	80.5		%	69.2		%	97.7		%	80.3		%

(1)Certain amounts included in the gross premiums written of each segment are related to intersegment transactions and are included in the gross premiums written of each segment. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above due to the elimination of intersegment transactions in the total.

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

8

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Insurance Segment

(U.S. dollars in thousands)

	Three Months Ended
	March 31,
	2010			2009
	Amount		% of Total	Amount		% of Total
Net premiums written
Property, energy, marine and aviation	$	100,665	22.2	$	106,029	24.0
Programs	70,498		15.6	74,807		16.9
Executive assurance	61,355		13.5	50,079		11.3
Professional liability	58,726		13.0	52,008		11.8
Construction	36,322		8.0	36,571		8.3
National accounts casualty	30,809		6.8	24,227		5.5
Casualty	25,463		5.6	26,539		6.0
Travel and accident	21,806		4.8	17,534		4.0
Surety	8,091		1.8	11,358		2.6
Healthcare	8,524		1.9	11,219		2.5
Other (1)	30,665		6.8	31,215		7.1
Total	$	452,924	100.0	$	441,586	100.0
Net premiums earned
Property, energy, marine and aviation	$	95,037	22.1	$	73,840	18.4
Programs	66,159		15.4	66,669		16.6
Executive assurance	56,322		13.1	47,816		11.9
Professional liability	62,245		14.5	58,234		14.5
Construction	34,485		8.0	40,420		10.1
National accounts casualty	21,773		5.1	14,439		3.6
Casualty	28,069		6.5	32,698		8.2
Travel and accident	16,078		3.7	13,156		3.3
Surety	10,258		2.4	13,391		3.3
Healthcare	9,943		2.3	10,928		2.7
Other (1)	29,108		6.9	29,506		7.4
Total	$	429,477	100.0	$	401,097	100.0
Net premiums written by client location
United States	$	303,168	66.9	$	317,044	71.8
Europe	102,489		22.6	92,396		20.9
Other	47,267		10.5	32,146		7.3
Total	$	452,924	100.0	$	441,586	100.0
Net premiums written by underwriting location
United States	302,437		66.8	$	320,829	72.7
Europe	133,739		29.5	105,313		23.8
Other	16,748		3.7	15,444		3.5
Total	$	452,924	100.0	$	441,586	100.0

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

9

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Insurance Segment

(U.S. dollars in thousands)

	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
	2010			2009			2009			2009			2009			2008			2008			2008			2008
Gross premiums written	$	633,576		$	563,087		$	673,986		$	636,645		$	638,409		$	564,570		$	678,338		$	621,663		$	626,348
Net premiums written	452,924			369,704			473,676			419,318			441,586			367,223			466,115			421,501			402,764
Net premiums earned	$	429,477		$	426,649		$	443,319		$	417,454		$	401,097		$	398,355		$	441,049		$	416,585		$	419,100
Fee income	753			883			814			795			870			811			872			880			882
Losses and loss adjustment expenses	(312,011		)	(278,746		)	(303,304		)	(287,350		)	(270,015		)	(307,136		)	(337,456		)	(262,633		)	(287,303		)
Acquisition expenses, net	(67,431		)	(60,926		)	(60,964		)	(58,748		)	(57,623		)	(54,498		)	(62,752		)	(55,400		)	(51,889		)
Other operating expenses	(80,720		)	(75,144		)	(72,452		)	(70,836		)	(62,908		)	(71,819		)	(71,861		)	(71,566		)	(73,637		)
Underwriting income (loss)	$	(29,932	)	$	12,716		$	7,413		$	1,315		$	11,421		$	(34,287	)	$	(30,148	)	$	27,866		$	7,153
Underwriting Ratios
Loss ratio	72.6		%	65.3		%	68.4		%	68.8		%	67.3		%	77.1		%	76.5		%	63.0		%	68.6		%
Acquisition expense ratio (1)	15.5		%	14.1		%	13.6		%	13.9		%	14.1		%	13.5		%	14.0		%	13.1		%	12.2		%
Other operating expense ratio	18.8		%	17.6		%	16.3		%	17.0		%	15.7		%	18.0		%	16.3		%	17.2		%	17.6		%
Combined ratio	106.9		%	97.0		%	98.3		%	99.7		%	97.1		%	108.6		%	106.8		%	93.3		%	98.4		%
Net premiums written
Property, energy, marine and aviation	$	100,665		$	42,811		$	118,536		$	86,385		$	106,029		$	56,263		$	91,461		$	89,674		$	97,237
Programs	70,498			60,685			66,964			72,279			74,807			64,619			78,045			73,202			54,583
Executive assurance	61,355			58,561			58,529			52,919			50,079			54,028			53,665			43,740			42,169
Professional liability	58,726			60,109			66,002			57,773			52,008			58,449			70,778			63,583			54,081
Construction	36,322			24,503			36,823			56,190			36,571			31,989			43,916			50,105			39,480
National accounts casualty	30,809			16,553			30,726			7,582			24,227			8,856			16,609			9,416			13,055
Casualty	25,463			23,037			26,753			27,217			26,539			27,936			28,456			31,161			28,543
Travel and accident	21,806			15,528			15,998			19,557			17,534			12,436			16,949			15,948			16,653
Surety	8,091			10,716			12,025			9,254			11,358			12,704			16,599			10,206			10,867
Healthcare	8,524			10,610			10,854			9,667			11,219			11,161			11,411			11,027			10,997
Other (2)	30,665			46,591			30,466			20,495			31,215			28,782			38,226			23,439			35,099
Total	$	452,924		$	369,704		$	473,676		$	419,318		$	441,586		$	367,223		$	466,115		$	421,501		$	402,764
Net premiums earned
Property, energy, marine and aviation	$	95,037		$	91,549		$	94,471		$	78,570		$	73,840		$	76,586		$	88,903		$	83,830		$	84,458
Programs	66,159			67,672			69,436			71,809			66,669			66,462			71,576			62,085			56,987
Executive assurance	56,322			56,764			56,094			52,288			47,816			45,192			47,237			44,496			44,408
Professional liability	62,245			59,678			57,540			56,549			58,234			58,195			62,987			66,200			68,810
Construction	34,485			36,800			42,495			43,364			40,420			38,603			45,601			39,225			42,717
National accounts casualty	21,773			19,606			19,969			13,079			14,439			10,924			13,503			9,752			7,923
Casualty	28,069			27,198			30,004			31,246			32,698			35,251			37,351			38,292			42,306
Travel and accident	16,078			16,580			18,193			18,198			13,156			13,414			17,671			15,994			15,485
Surety	10,258			11,448			12,239			12,141			13,391			12,109			13,891			12,057			13,499
Healthcare	9,943			9,886			12,303			10,830			10,928			10,880			12,292			13,137			13,445
Other (2)	29,108			29,468			30,575			29,380			29,506			30,739			30,037			31,517			29,062
Total	$	429,477		$	426,649		$	443,319		$	417,454		$	401,097		$	398,355		$	441,049		$	416,585		$	419,100

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

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

10

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Reinsurance Segment

(U.S. dollars in thousands)

	Three Months Ended
	March 31,
	2010			2009
	Amount		% of Total	Amount		% of Total
Net premiums written
Property catastrophe	$	88,802	28.2	$	91,903	24.1
Property excluding property catastrophe (1)	74,927		23.8	119,088		31.2
Casualty (2)	72,582		23.1	99,432		26.1
Other specialty	54,762		17.4	40,712		10.7
Marine and aviation	21,238		6.7	28,523		7.5
Other	2,519		0.8	1,619		0.4
Total	$	314,830	100.0	$	381,277	100.0
Net premiums earned
Property catastrophe	$	53,873	22.4	$	58,601	19.6
Property excluding property catastrophe (1)	79,239		33.0	96,231		32.1
Casualty (2)	70,436		29.3	85,946		28.7
Other specialty	17,769		7.4	33,450		11.2
Marine and aviation	18,072		7.5	24,830		8.3
Other	1,051		0.4	409		0.1
Total	$	240,440	100.0	$	299,467	100.0
Net premiums written
Pro rata	$	118,037	37.5	$	181,222	47.5
Excess of loss	196,793		62.5	200,055		52.5
Total	$	314,830	100.0	$	381,277	100.0
Net premiums earned
Pro rata	$	130,871	54.4	$	194,518	65.0
Excess of loss	109,569		45.6	104,949		35.0
Total	$	240,440	100.0	$	299,467	100.0
Net premiums written by client location
United States	$	171,001	54.3	$	229,968	60.3
Europe	107,142		34.0	101,501		26.6
Bermuda	22,675		7.2	37,567		9.9
Other	14,012		4.5	12,241		3.2
Total	$	314,830	100.0	$	381,277	100.0
Net premiums written by underwriting location
Bermuda	$	164,934	52.4	$	195,600	51.3
United States	103,726		32.9	146,193		38.3
Other	46,170		14.7	39,484		10.4
Total	$	314,830	100.0	$	381,277	100.0

(1) Includes facultative business.

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

11

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Reinsurance Segment

(U.S. dollars in thousands)

	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
	2010			2009			2009			2009			2009			2008			2008			2008			2008
Gross premiums written	$	323,477		$	159,229		$	266,193		$	278,389		$	390,129		$	266,165		$	228,593		$	273,318		$	433,827
Net premiums written	314,830			149,383			253,632			274,536			381,277			248,351			226,577			264,617			408,578
Net premiums earned	$	240,440		$	281,889		$	291,066		$	281,804		$	299,467		$	300,159		$	291,982		$	289,090		$	289,134
Fee income	41			11			12			22			55			645			72			358			186
Losses and loss adjustment expenses	(116,040		)	(131,614		)	(141,610		)	(111,508		)	(130,527		)	(183,680		)	(211,430		)	(141,992		)	(117,114		)
Acquisition expenses, net	(50,193		)	(59,623		)	(61,775		)	(65,066		)	(68,835		)	(68,733		)	(70,661		)	(63,826		)	(62,750		)
Other operating expenses	(20,398		)	(24,161		)	(21,271		)	(16,943		)	(18,192		)	(21,761		)	(18,331		)	(20,091		)	(18,238		)
Underwriting income (loss)	$	53,850		$	66,502		$	66,422		$	88,309		$	81,968		$	26,630		$	(8,368	)	$	63,539		$	91,218
Underwriting Ratios
Loss ratio	48.3		%	46.7		%	48.7		%	39.6		%	43.6		%	61.2		%	72.4		%	49.1		%	40.5		%
Acquisition expense ratio	20.9		%	21.2		%	21.2		%	23.1		%	23.0		%	22.9		%	24.2		%	22.1		%	21.7		%
Other operating expense ratio	8.5		%	8.6		%	7.3		%	6.0		%	6.1		%	7.2		%	6.3		%	6.9		%	6.3		%
Combined ratio	77.7		%	76.5		%	77.2		%	68.7		%	72.7		%	91.3		%	102.9		%	78.1		%	68.5		%
Net premiums written
Property catastrophe	$	88,802		$	3,022		$	50,539		$	91,981		$	91,903		$	27,534		$	44,591		$	52,797		$	106,224
Property excluding property catastrophe (1)	74,927			49,413			90,845			90,569			119,088			90,909			56,105			85,748			95,922
Casualty (2)	72,582			68,693			85,084			72,490			99,432			71,740			82,497			86,974			105,987
Other specialty	54,762			10,578			10,595			3,304			40,712			26,066			24,013			20,693			75,680
Marine and aviation	21,238			17,576			16,187			15,391			28,523			31,867			18,727			17,975			22,164
Other	2,519			101			382			801			1,619			235			644			430			2,601
Total	$	314,830		$	149,383		$	253,632		$	274,536		$	381,277		$	248,351		$	226,577		$	264,617		$	408,578
Net premiums earned
Property catastrophe	$	53,873		$	56,937		$	61,772		$	58,763		$	58,601		$	60,975		$	57,015		$	51,496		$	50,281
Property excluding property catastrophe (1)	79,239			94,716			94,837			87,304			96,231			78,778			68,670			67,445			63,341
Casualty (2)	70,436			86,193			88,721			84,078			85,946			95,990			106,146			106,199			107,648
Other specialty	17,769			24,085			23,251			25,912			33,450			36,255			36,388			36,058			38,484
Marine and aviation	18,072			18,882			21,666			25,063			24,830			26,877			22,395			26,946			27,431
Other	1,051			1,076			819			684			409			1,284			1,368			946			1,949
Total	$	240,440		$	281,889		$	291,066		$	281,804		$	299,467		$	300,159		$	291,982		$	289,090		$	289,134

(1) Includes facultative business.

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

12

Arch Capital Group Ltd. and Subsidiaries

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

(U.S. dollars in thousands)

	March 31,							December 31,						September 30,						June 30,					March 31,
	2010							2009						2009						2009					2009
Investable assets:
Fixed maturities available for sale, at market value	$		9,295,680			80	%	$		9,391,926		82	%	$		9,265,961		80	%	$	8,944,110		83	%	$	8,540,653		83	%
Fixed maturities pledged under securities lending agreements, at market value (1)	181,871					2	%	208,826				2	%	609,334				5	%	559,385			5	%	503,449			5	%
Total fixed maturities	9,477,551					82	%	9,600,752				84	%	9,875,295				85	%	9,503,495			88	%	9,044,102			88	%
Short-term investments available for sale, at market value	669,798					6	%	571,490				5	%	706,157				6	%	660,859			6	%	749,708			7	%
Short-term investments pledged under securities lending agreements, at market value (1)	2,350					0	%	3,993				0	%	—				0	%	—			0	%	56,242			1	%
Cash	338,708					3	%	334,571				3	%	385,149				4	%	336,693			3	%	244,037			2	%
TALF investments, at market value (2)	406,997					3	%	250,265				2	%	250,517				2	%	—			—		—			—
Other investments
Fixed income mutual funds	70,204					1	%	63,146				2	%	55,646				1	%	49,505			0	%	32,912			0	%
Privately held securities and other (Aeolus LP, etc.)	193,404					2	%	109,027				1	%	98,880				1	%	65,755			1	%	72,076			1	%
Investment funds accounted for using the equity method	405,584					3	%	391,869				3	%	376,381				3	%	370,165			4	%	293,452			3	%
Securities transactions entered into but not settled at the balance sheet date	(2,444				)	0	%	50,790				0	%	(198,980			)	(2	)%	(239,736		)	(2	)%	(241,836		)	(2	)%
Total investable assets (1)	$	11,562,152				100	%	$	11,375,903			100	%	$	11,549,045			100	%	$	10,746,736		100	%	$	10,250,693		100	%
Fixed income metrics (1):
Average effective duration (in years)	2.77							2.87						3.09						3.02					3.02
Average credit quality	AA+							AA+						AA+						AA+					AA+
Imbedded book yield (before investment expenses)	3.57				%			3.64			%			3.93			%			4.06		%			4.17		%
Credit quality distribution of total fixed maturities (1) (3):
AAA	$			7,010,314		74	%	$		7,072,381		74	%	$		7,124,679		72	%	$	7,163,333		75	%	$	7,146,184		79	%
AA	1,117,951					12	%	1,281,377				13	%	1,232,298				12	%	1,013,732			10	%	833,192			9	%
A	580,769					6	%	547,104				6	%	786,142				8	%	734,015			8	%	645,995			7	%
BBB	263,195					3	%	231,988				2	%	274,338				3	%	267,107			3	%	178,854			2	%
BB	97,634					1	%	85,952				1	%	75,030				1	%	65,242			1	%	54,094			1	%
B	204,743					2	%	209,417				2	%	231,047				2	%	178,196			2	%	126,670			1	%
Lower than B	118,362					1	%	80,871				1	%	69,921				1	%	29,446			0	%	11,825			0	%
Not rated	84,583					1	%	91,662				1	%	81,840				1	%	52,424			1	%	47,288			1	%
Total fixed maturities, at market value	$			9,477,551		100	%	$		9,600,752		100	%	$		9,875,295		100	%	$	9,503,495		100	%	$	9,044,102		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. This table excludes the collateral received and reinvested in fixed maturities, short-term investments and securities purchased under agreements to resell and includes the fixed maturities and short-term investments pledged under securities lending agreements, at market value.
(2)	The Company participates in the Federal Reserve’s Term Asset-Backed Securities Loan Facility (“TALF”), which provides secured financing for asset-backed securities backed by certain types of consumer and small-business loans and legacy commercial mortgage-backed securities. TALF financing is non-recourse to the Company, is collateralized by the purchased securities and provides financing for the purchase price of the securities, less a ‘haircut’ that varies based on the type of collateral. The Company can deliver the collateralized securities to the Federal Reserve in full of the loan and is carrying the investments and borrowings at market value.
(3)	Ratings as assigned by the major rating agencies.

13

Arch Capital Group Ltd. and Subsidiaries

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

(U.S. dollars in thousands)

Composition of Fixed Maturities

The following table summarizes the Company’s fixed maturities and fixed maturities pledged under securities lending agreements, excluding TALF investments, at March 31, 2010:

			Gross		Gross			Net					Estimated
	Estimated		Unrealized		Unrealized			Unrealized			Amortized		Market Value /
	Market Value		Gains		Losses			Gains (Losses)			Cost		Amortized Cost
Corporates	$	1,972,981	$	72,636	$	(8,488	)	$	64,148		$	1,908,833	103.4	%
Non-U.S. government-backed corporates	731,357		18,115		(5,989		)	12,126			719,231		101.7	%
FDIC guaranteed corporates	225,654		4,058		—			4,058			221,596		101.8	%
U.S. government and government agencies	1,435,477		10,288		(5,828		)	4,460			1,431,017		100.3	%
Agency mortgage-backed securities	1,477,612		12,085		(1,705		)	10,380			1,467,232		100.7	%
Non-agency mortgage-backed securities	373,088		8,755		(34,467		)	(25,712		)	398,800		93.6	%
Agency commercial mortgage-backed securities	405,595		17,883		(6,739		)	11,144			394,451		102.8	%
Non-agency commercial mortgage-backed securities	667,892		19,157		(2,151		)	17,006			650,886		102.6	%
Municipal bonds	873,272		37,032		(2,168		)	34,864			838,408		104.2	%
Non-U.S. government securities	719,697		29,759		(11,664		)	18,095			701,602		102.6	%
Asset-backed securities	594,926		21,809		(5,519		)	16,290			578,636		102.8	%
Total	$	9,477,551	$	251,577	$	(84,718	)	$	166,859		$	9,310,692	101.8	%

Corporates (Excluding Guaranteed Amounts)

The following table summarizes the Company’s corporate bonds by major sector and by credit quality distribution at March 31, 2010, excluding guaranteed amounts:

	Estimated Market Value
			% of Asset		% of Investable
	Total		Class		Assets
Sector:
Financials	$	988,342	50.1	%	8.5	%
Industrials	641,807		32.5	%	5.6	%
Utilities	73,923		3.7	%	0.6	%
Foreign agencies	53,493		2.7	%	0.5	%
All other (1)	215,416		11.0	%	1.9	%
Total	$	1,972,981	100.0	%	17.1	%
Credit quality distribution:
AAA	$	381,290	19.3	%	3.3	%
AA	526,289		26.7	%	4.6	%
A	467,519		23.7	%	4.0	%
BBB	245,172		12.4	%	2.1	%
BB	82,683		4.2	%	0.7	%
B	168,181		8.5	%	1.5	%
Lower than B	16,633		0.8	%	0.1	%
Not rated	85,214		4.4	%	0.7	%
Total	$	1,972,981	100.0	%	17.1	%

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

The following table summarizes the Company’s top ten exposures to fixed income corporate issuers by fair value at March 31, 2010, excluding guaranteed amounts:

	Estimated		% of Asset		% of Investable
Issuer	Market Value		Class		Assets
Banco Santander SA	$	90,032	4.6	%	0.8	%
JPMorgan Chase & Co.	76,935		3.9	%	0.7	%
General Electric Co.	59,284		3.0	%	0.5	%
Sovrisc BV	47,395		2.4	%	0.4	%
Total SA	45,236		2.3	%	0.4	%
Bank of America Corp.	44,799		2.3	%	0.4	%
Citigroup Inc.	44,793		2.3	%	0.4	%
The Goldman Sachs Group Inc.	41,547		2.1	%	0.4	%
Barclays PLC	39,856		2.0	%	0.3	%
Wells Fargo & Company	38,918		2.0	%	0.3	%
Total	$	528,795	26.8	%	4.6	%

14

Arch Capital Group Ltd. and Subsidiaries

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

(U.S. dollars in thousands)

The following table provides information on the Company’s mortgage-backed securities (“MBS”) and commercial mortgage-backed securities (“CMBS”) at March 31, 2010, 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:	2003	$	3,212	AAA	$	3,100	96.5	%	0.0	%
	2004	21,869		A-	19,483		89.1	%	0.2	%
	2005	71,272		BBB-	59,706		83.8	%	0.5	%
	2006	54,118		B-	46,806		86.5	%	0.4	%
	2007	68,120		CCC+	58,596		86.0	%	0.5	%
	2008	11,797		CCC	9,663		81.9	%	0.1	%
	2009 (6)	166,478		AAA	173,752		104.4	%	1.5	%
	2010 (6)	1,934		AAA	1,982		102.5	%	0.0	%
Total non-agency MBS		$	398,800	A-	$	373,088	93.6	%	3.2	%
Non-agency CMBS:	1998	$	3,688	AAA	$	3,844	104.2	%	0.0	%
	1999	163		AAA	163		100.0	%	0.0	%
	2000	4,151		AAA	4,159		100.2	%	0.0	%
	2001	239,312		AAA	243,407		101.7	%	2.1	%
	2002	66,587		AAA	68,137		102.3	%	0.6	%
	2003	71,551		AAA	75,271		105.2	%	0.7	%
	2004	99,487		AAA	99,861		100.4	%	0.9	%
	2005	51,154		AAA	50,782		99.3	%	0.4	%
	2006	64,665		AAA	67,614		104.6	%	0.6	%
	2007	50,128		AAA	54,654		109.0	%	0.5	%
Total non-agency CMBS		$	650,886	AAA	$	667,892	102.6	%	5.8	%

	Non-Agency MBS				Non-Agency
Additional Statistics	Re-REMICs		All Other		CMBS (1)
Wtd. average loan age (months)	39		50		92
Wtd. average life (months) (2)	30		60		29
Wtd. average loan-to-value % (3)	72.7	%	69.9	%	71.4	%
Total delinquencies (4)	22.5	%	20.2	%	5.1	%
Current credit support % (5)	40.7	%	13.4	%	25.1	%

(1)	Loans defeased with government/agency obligations represented approximately 27% of the collateral underlying the Company’s CMBS holdings. Non-agency CMBS statistics exclude securities backed by cell tower assets for which current data was not available. Such securities had a par value of $106 million, amortized cost of $103 million and an estimated market value of $110 million).
(2)	The weighted average life for MBS is based on the interest rates in effect at March 31, 2010. 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 37.9% to 85.6%, while the range of loan-to-values on CMBS is 56.5% to 113.7%.
(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.
(6)	Primarily represents Re-REMICs issued in 2009 and 2010 with an average credit quality of “AAA” from Fitch ratings.

The following table provides information on the Company’s asset-backed securities (“ABS”) at March 31, 2010:

			Average	Estimated Market Value
	Amortized		Credit			% of Amortized		% of Investable
	Cost		Quality	Total		Cost		Assets
Sector:
Autos (1)	$	228,717	AAA	$	235,400	102.9	%	2.0	%
Credit cards (2)	240,212		AAA	250,983		104.5	%	2.2	%
Rate reduction bonds (3)	34,451		AAA	35,411		102.8	%	0.3	%
Equipment (4)	25,923		AAA	26,944		103.9	%	0.2	%
Student loans (5)	20,500		AAA	21,674		105.7	%	0.2	%
Other	9,399		AA+	8,806		93.7	%	0.1	%
	559,202		AAA	579,218		103.6	%	5.0	%
Home equity (6)	$	6,579	AAA	$	5,788	88.0	%	0.1	%
	$	293	A	294		100.3	%	0.0	%
	$	646	BBB	632		97.8	%	0.0	%
	$	9,651	BB to B	6,931		71.8	%	0.1	%
	2,019		CCC to C	1,991		98.6	%	0.0	%
	246		D	72		29.3	%	0.0	%
	19,434		BBB	15,708		80.8	%	0.1	%
Total ABS	$	578,636	AAA	$	594,926	102.8	%	5.1	%

The effective duration of the total ABS was 1.2 years at March 31, 2010.

(1)The weighted average credit support % on autos is 32.5%.

(2)The average credit support % on credit cards is 22.8%.

(3)The weighted average credit support % on rate reduction bonds is 20.1%.

(4)The weighted average credit support % on equipment is 12.6%.

(5)The weighted average credit support % on student loans is 6.8%.

(6)The weighted average credit support % on home equity is 23.7%.

The Company’s investment portfolio included $50.3 million par in sub-prime securities at March 31, 2010, with an estimated market value of $19.2 million and an average credit quality of “Baa3/BBB.” 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 $16.6 million estimated market value of sub-prime securities with an average credit quality of “B” from Standard & Poors and “B2” from Moody’s.

15

Arch Capital Group Ltd. and Subsidiaries

Investment Information — Bank Loan Investments

(U.S. dollars in thousands)

The Company’s investments in bank loan funds are included in the following categories at March 31, 2010:

	Carrying		% of Asset		% of Investable
	Value		Class		Assets
Investment funds accounted for using the equity method	$	272,279	61.9	%	2.4	%
Corporate bonds, at market value	123,262		28.0	%	1.1	%
Other investments, at market value	44,103		10.1	%	0.4	%
Total	$	439,644	100.0	%	3.8	%

The following table summarizes the Company’s bank loan funds by currency (translated into U.S. Dollars) at March 31, 2010:

	Carrying		% of Asset		% of Investable
	Value		Class		Assets
U.S.-denominated	$	295,261	67.2	%	2.6	%
Euro-denominated	144,383		32.8	%	1.2	%
Total	$	439,644	100.0	%	3.8	%

The following table summarizes the Company’s bank loan funds by major sector at March 31, 2010:

	Carrying		% of Asset		% of Investable
	Value		Class		Assets
Sector:
Media	$	79,308	18.0	%	0.7	%
Industrials	63,066		14.3	%	0.5	%
Consumer cyclical	53,344		12.1	%	0.5	%
Consumer non-cyclical	42,035		9.6	%	0.4	%
Basic materials	26,905		6.1	%	0.2	%
Utilities	24,835		5.6	%	0.2	%
All other	150,151		34.3	%	1.3	%
Total	$	439,644	100.0	%	3.8	%
Weighted average rating factor (Moody’s)	B2

16

Arch Capital Group Ltd. and Subsidiaries

Comments on Regulation G

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

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

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

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

17

Arch Capital Group Ltd. and Subsidiaries

Operating Income Reconciliation

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

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

	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
	2010			2009			2009			2009			2009			2008 (1)			2008			2008			2008
After-tax operating income available to common shareholders	$	98,731		$	159,431		$	160,332		$	163,041		$	169,001		$	85,934		$	64,094		$	185,375		$	201,983
Net realized gains (losses), net of tax	45,503			88,592			69,190			(11,243		)	(9,111		)	(30,836		)	(21,904		)	(2,174		)	45,782
Net impairment losses recognized in earnings, net of tax	(1,606		)	(4,493		)	(4,643		)	(20,786		)	(36,134		)	(75,169		)	(82,514		)	(10,694		)	(12,646		)
Equity in net income (loss) of investment funds accounted for using the equity method, net of tax	29,050			32,391			69,119			75,890			(9,581		)	(174,147		)	(1,731		)	19,583			(22,313		)
Net foreign exchange gains (losses), net of tax	38,855			8,775			(19,591		)	(54,773		)	25,694			51,246			68,445			192			(23,384		)
Net income (loss) available to common shareholders	$	210,533		$	284,696		$	274,407		$	152,129		$	139,869		$	(142,972	)	$	26,390		$	192,282		$	189,422
Diluted per common share results:
After-tax operating income available to common shareholders	$	1.78		$	2.66		$	2.56		$	2.60		$	2.70		$	1.43		$	1.02		$	2.82		$	2.97
Net realized gains (losses), net of tax	0.82			1.48			1.11			(0.18		)	(0.14		)	(0.51		)	(0.35		)	(0.03		)	0.67
Net impairment losses recognized in earnings, net of tax	(0.03		)	(0.08		)	(0.08		)	(0.33		)	(0.58		)	(1.25		)	(1.31		)	(0.17		)	(0.19		)
Equity in net income (loss) of investment funds accounted for using the equity method, net of tax	0.52			0.54			1.11			1.21			(0.15		)	(2.90		)	(0.03		)	0.30			(0.33		)
Net foreign exchange gains (losses), net of tax	0.70			0.15			(0.31		)	(0.87		)	0.41			0.85			1.09			0.00			(0.34		)
Net income (loss) available to common shareholders	$	3.79		$	4.75		$	4.39		$	2.43		$	2.24		$	(2.38	)	$	0.42		$	2.92		$	2.78
Weighted average common shares and common share equivalents outstanding — diluted	55,513,827			59,910,667			62,533,816			62,626,317			62,559,969			60,048,258			62,830,910			65,748,119			68,019,413

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

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

18

Arch Capital Group Ltd. and Subsidiaries

Share Repurchase Activity

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

The following table provides an analysis of the Company’s share repurchase program:

	Three Months Ended																				Cumulative
	March 31,		December 31,		September 30,		June 30,		March 31,		December 31,		September 30,		June 30,		March 31,		December 31,		March 31,
	2010		2009		2009		2009		2009		2008		2008		2008		2008		2007		2010
Effect of share repurchases:
Aggregate cost of shares repurchased	$	181,272	$	358,655	$	98,194	$	0	$	1,552	$	0	$	123,377	$	199,910	$	189,843	$	136,361	$	1,689,869
Shares repurchased	2,529,913		5,148,271		1,533,247		—		33,305		—		1,865,482		2,871,859		2,749,909		1,956,596		24,501,025
Average price per share repurchased	$	71.65	$	69.67	$	64.04			$	46.60			$	66.14	$	69.61	$	69.04	$	69.69	$	68.97
Average book value per common share (1)	$	74.96	$	71.25	$	65.12	$	57.68	$	52.98	$	52.20	$	55.27	$	57.20	$	56.02	$	53.23
Average repurchase price-to-book multiple	0.96x		0.98x		0.98x				0.88x				1.20x		1.22x		1.23x		1.31x
Remaining share repurchase authorization	$	810,131
			Year Ended								Year Ended								Year Ended
			December 31,								December 31,								December 31,
			2009								2008								2007
Effect of share repurchases:
Aggregate purchase price of shares repurchased			$	458,401							$	513,130							$	718,338
Shares repurchased			6,714,823								7,487,250								10,298,952
Average price per share repurchased			$	68.27							$	68.53							$	69.75

(1)Equals average of beginning and ending book value per common share for each period presented.

(2)In November 2009, the board of directors of ACGL authorized the Company to invest up to an additional $1.0 billion in ACGL’s common shares. Repurchases under the new authorization may be effected from time to time in open market or privately negotiated transactions through December 31, 2011.  The Company’s previous authorization provided for the investment of up to $1.5 billion in ACGL’s common shares.

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
	March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
	2010			2009			2009			2009			2009			2008			2008			2008			2008
After-tax operating income available to common shareholders	$	98,731		$	159,431		$	160,332		$	163,041		$	169,001		$	85,934		$	64,094		$	185,375		$	201,983
Annualized after-tax operating income available to common shareholders (a)	$	394,924		$	637,724		$	641,328		$	652,164		$	676,004		$	343,736		$	256,376		$	741,500		$	807,932
Beginning common shareholders’ equity	$	3,998,349		$	4,135,822		$	3,704,968		$	3,305,396		$	3,107,965		$	3,191,710		$	3,561,233		$	3,679,544		$	3,710,811
Ending common shareholders’ equity	4,053,757			3,998,349			4,135,822			3,704,968			3,305,396			3,107,965			3,191,710			3,561,233			3,679,544
Average common shareholders’ equity (b)	$	4,026,053		$	4,067,086		$	3,920,395		$	3,505,182		$	3,206,681		$	3,149,838		$	3,376,472		$	3,620,389		$	3,695,178
Annualized operating return on average common equity (a)/(b)	9.8		%	15.7		%	16.4		%	18.6		%	21.1		%	10.9		%	7.6		%	20.5		%	21.9		%

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:

	March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
	2010			2009			2009			2009			2009			2008			2008			2008			2008
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			100,000			100,000			100,000			—
Total debt	$	400,000		$	400,000		$	400,000		$	400,000		$	400,000		$	400,000		$	400,000		$	400,000		$	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)	4,053,757			3,998,349			4,135,822			3,704,968			3,305,396			3,107,965			3,191,710			3,561,233			3,679,544
Total shareholders’ equity	$	4,378,757		$	4,323,349		$	4,460,822		$	4,029,968		$	3,630,396		$	3,432,965		$	3,516,710		$	3,886,233		$	4,004,544
Total capital	$	4,778,757		$	4,723,349		$	4,860,822		$	4,429,968		$	4,030,396		$	3,832,965		$	3,916,710		$	4,286,233		$	4,304,544
TALF non-recourse borrowings, at market value, due between 2012 to 2015 (various) (3)	346,746			217,565			219,843			—			—			—			—			—			—
Total capital and TALF non-recourse borrowings	$	5,125,503		$	4,940,914		$	5,080,665		$	4,429,968		$	4,030,396		$	3,832,965		$	3,916,710		$	4,286,233		$	4,304,544
Common shares outstanding (4) (b)	52,709,934			54,761,678			59,524,309			60,980,806			60,532,222			60,511,974			60,173,489			61,943,100			64,649,618
Book value per common share (a)/(b)	$	76.91		$	73.01		$	69.48		$	60.76		$	54.61		$	51.36		$	53.04		$	57.49		$	56.92
Leverage ratios:
Senior notes/total capital	6.3		%	6.4		%	6.2		%	6.8		%	7.4		%	7.8		%	7.7		%	7.0		%	7.0		%
Revolving credit agreement borrowings/total capital	2.1		%	2.1		%	2.1		%	2.3		%	2.5		%	2.6		%	2.6		%	2.3		%	0.0		%
Debt/total capital	8.4		%	8.5		%	8.2		%	9.0		%	9.9		%	10.4		%	10.2		%	9.3		%	7.0		%
Preferred/total capital	6.8		%	6.9		%	6.7		%	7.3		%	8.1		%	8.5		%	8.3		%	7.6		%	7.6		%
Debt and preferred/total capital	15.2		%	15.3		%	14.9		%	16.4		%	18.0		%	18.9		%	18.5		%	16.9		%	14.5		%

(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)The Company participates in the Federal Reserve’s Term Asset-Backed Securities Loan Facility (“TALF”), which provides secured financing for asset-backed securities backed by certain types of consumer and small-business loans and legacy commercial mortgage-backed securities. TALF financing is non-recourse to the Company, is collateralized by the purchased securities and provides financing for the purchase price of the securities, less a ‘haircut’ that varies based on the type of collateral. The Company can deliver the collateralized securities to the Federal Reserve in full defeasance of the loan. The Company excludes the TALF non-recourse borrowings from the calculations of leverage ratios and total capital due to the nature of the borrowings. If the TALF non-recourse borrowings were included in the leverage ratios and total capital, the ratio of debt to total capital would have been 14.6% and the ratio of debt and preferred to total capital would have been 20.9% at March 31, 2010.

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

21