8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 8-K

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

July 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):

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

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

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

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

ITEM 2.02Results of Operations and Financial Condition.

On July 26, 2010, Arch Capital Group Ltd. issued a press release reporting its earnings and the availability of its second quarter financial supplement for the six month period ended June 30, 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 9.01Exhibits.

EXHIBIT NO.	DESCRIPTION
99.1	Press Release dated July 26, 2010 announcing the earnings of Arch Capital Group Ltd. for the six month period ended June 30, 2010
99.2	Second Quarter 2010 Financial Supplement

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SIGNATURES

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

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

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EXHIBIT INDEX

EXHIBIT NO.	DESCRIPTION
99.1	Press Release dated July 26, 2010 announcing the earnings of Arch Capital Group Ltd. for the six month period ended June 30, 2010
99.2	Second Quarter 2010 Financial Supplement

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EX-99.1

Exhibit 99.1

ARCH CAPITAL GROUP LTD.

Earnings Release Supplement

As of June 30, 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 SECOND QUARTER RESULTS

HAMILTON, BERMUDA, July 26, 2010 — Arch Capital Group Ltd. (NASDAQ: ACGL) reports that net income available to common shareholders for the 2010 second quarter was $237.0 million, or $4.45 per share, compared to $152.1 million, or $2.43 per share, for the 2009 second quarter. The Company also reported after-tax operating income available to common shareholders of $132.2 million, or $2.48 per share, for the 2010 second quarter, compared to $163.0 million, or $2.60 per share, for the 2009 second quarter. All earnings per share amounts discussed in this release are on a diluted basis.

The Company’s book value per common share was $82.07 at June 30, 2010, a 6.7% increase from $76.91 per share at March 31, 2010 and a 12.4% increase from $73.01 per share at December 31, 2009. The Company’s after-tax operating income available to common shareholders represented a 13.0% annualized return on average common equity for the 2010 second quarter, compared to 18.6% for the 2009 second 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						Six Months Ended
	June 30,						June 30,
(U.S. dollars in thousands)	2010			2009			2010			2009
Gross premiums written	$	817,100		$	911,920		$	1,770,787		$	1,936,891
Net premiums written	624,258			693,854			1,392,012			1,516,717
Net premiums earned	623,011			699,258			1,292,928			1,399,822
Underwriting income	62,244			89,624			86,162			183,013
Combined ratio	90.0		%	87.2		%	93.4		%	87.0		%

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

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(U.S. dollars in thousands, except share data)	2010			2009			2010			2009
After-tax operating income available to common shareholders	$	132,182		$	163,041		$	230,913		$	332,042
Net realized gains (losses), net of tax	61,119			(11,243		)	106,622			(20,354		)
Net impairment losses recognized in earnings, net of tax	(4,410		)	(20,786		)	(6,016		)	(56,920		)
Equity in net income (loss) of investment funds accounted for using the equity method, net of tax	(348		)	75,890			28,702			66,309
Net foreign exchange gains (losses), net of tax	48,447			(54,773		)	87,302			(29,079		)
Net income available to common shareholders	$	236,990		$	152,129		$	447,523		$	291,998
Diluted per common share results:
After-tax operating income available to common shareholders	$	2.48		$	2.60		$	4.24		$	5.31
Net realized gains (losses), net of tax	1.15			(0.18		)	1.96			(0.33		)
Net impairment losses recognized in earnings, net of tax	(0.08		)	(0.33		)	(0.11		)	(0.91		)
Equity in net income (loss) of investment funds accounted for using the equity method, net of tax	(0.01		)	1.21			0.53			1.06
Net foreign exchange gains (losses), net of tax	0.91			(0.87		)	1.61			(0.46		)
Net income available to common shareholders	$	4.45		$	2.43		$	8.23		$	4.67
Weighted average common shares and common share equivalents outstanding — diluted	53,265,303			62,626,317			54,386,690			62,589,856

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 second quarter, the combined ratio of the Company’s insurance and reinsurance subsidiaries consisted of a loss ratio of 58.3% and an underwriting expense ratio of 31.7%, compared to a loss ratio of 57.0% and an underwriting expense ratio of 30.2% for the 2009 second quarter. For the six months ended June 30, 2010, the combined ratio of the Company’s insurance and reinsurance subsidiaries consisted of a loss ratio of 61.2% and an underwriting expense ratio of 32.2%, compared to a loss ratio of 57.1% and an underwriting expense ratio of 29.9% for the 2009 second quarter. The loss ratio of 58.3% for the 2010 second quarter was comprised of 46.8 points of paid losses, 5.4 points related to reserves for reported losses and 6.1 points related to incurred but not reported reserves. The 2010 second quarter loss ratio reflected a lower than anticipated level of losses (1.1 points) from catastrophic events occurring in the current accident year.

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

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the reserving process could prove to be inaccurate due to several factors, including the fact that relatively limited historical information has been reported to the Company through June 30, 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 hedge funds or private equity funds. The average effective duration of the portfolio was 2.90 years at June 30, 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 1.74% for the 2010 second quarter, compared to 3.89% for the 2009 second quarter, and 3.35% for the six months ended June 30, 2010, compared to 5.03% for the six months ended June 30, 2009. Excluding the effects of foreign exchange, total return was 2.22% for the 2010 second quarter, compared to 3.20% for the 2009 second quarter, and 4.24% for the six months ended June 30, 2010, compared to 4.46% for the six months ended June 30, 2009.

Net investment income for the 2010 second quarter was $90.5 million, or $1.70 per share, compared to $100.5 million, or $1.60 per share, for the 2009 second quarter. The comparability of net investment income between the 2010 and 2009 periods was influenced by the Company’s share repurchase program described below. In addition, during the 2010 second quarter, the Company recorded a reduction to net investment income following a review of prepayment assumptions on certain commercial mortgage backed securities. The 2010 investment income yields were calculated excluding $3.7 million of amortization expense which was recorded in the 2010 second quarter but is not expected to impact yields during the balance of 2010. The pre-tax investment income yield was 3.48% for the 2010 second quarter, compared to 3.91% for the 2009 second quarter, and 3.46% for the six months ended June 30, 2010, compared to 3.87% for the six months ended June 30, 2009. The lower yields in the 2010 periods primarily reflect lower prevailing interest rates available in the market.

Consolidated cash flow provided by operating activities for the 2010 second quarter was $205.5 million, compared to $223.7 million for the 2009 second quarter, and $390.1 million for the six months ended June 30, 2010, compared to $518.5 million for the six months ended June 30, 2009. The decline in cash flow in the 2010 periods reflect 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 second quarter, the Company’s effective tax rates on income before income taxes and pre-tax operating income were 0.6% and 0.2%, respectively, compared to 5.3% and 4.7%, respectively, for the 2009 second quarter. For the six months ended June 30, 2010, the Company’s effective tax rates on income before income taxes and pre-tax operating income were 1.7% and 2.0%, respectively, compared to 5.7% and 4.0%, respectively, for the six months ended June 30, 2009. 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 reduced its estimated annual effective tax rate on pre-tax operating income during the 2010 second quarter. The impact of applying the lower effective tax rate on pre-tax operating income for the six months ended June 30, 2010 increased the Company’s after-tax operating results for the 2010 second quarter by $2.5 million, or $0.05 per share. 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 1.0% to 3.0%. In addition, the Company’s Bermuda-based reinsurer incurs federal excise taxes for premiums assumed on U.S. risks. The Company incurred $5.9 million of federal excise taxes for the

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six months ended June 30, 2010, compared to $6.3 million for the six months ended June 30, 2009. Such amounts are reflected as acquisition expenses in the Company’s consolidated statements of income.

Net foreign exchange gains for the 2010 second quarter of $48.6 million consisted of net unrealized gains of $49.1 million and net realized losses of $0.5 million, compared to net foreign exchange losses for the 2009 second quarter of $53.7 million which consisted of net unrealized losses of $52.2 million and net realized losses of $1.5 million. The 2010 second quarter net foreign exchange gains primarily resulted from the strengthening of the U.S. Dollar against the Euro during the period. Net foreign exchange gains for the six months ended June 30, 2010 of $87.2 million consisted of net unrealized gains of $87 million and net realized gains of $0.2 million, compared to net foreign exchange losses for the six months ended June 30, 2009 of $28.5 million which consisted of net unrealized losses of $26.2 million and net realized losses of $2.3 million.

Net unrealized foreign exchange gains or losses result from the effects of revaluing the Company’s net insurance liabilities required to be settled in foreign currencies at each balance sheet date. 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 in the same currencies, which could increase the Company’s exposure to foreign currency fluctuations and increase the volatility of 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 second quarter, the Company repurchased 3.6 million common shares for an aggregate purchase price of $269.1 million. Since the inception of the share repurchase program through June 30, 2010, ACGL has repurchased 28.1 million common shares for an aggregate purchase price of $1.96 billion. At June 30, 2010, $541.1 million of repurchases were available under the share repurchase program.

At June 30, 2010, the Company’s capital of $4.82 billion consisted of $300.0 million of senior notes, representing 6.2% of the total, $125.0 million of revolving credit agreement borrowings due in August 2011, representing 2.6% of the total, $325.0 million of preferred shares, representing 6.7% of the total, and common shareholders’ equity of $4.07 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 $4.00 billion, representing the balance.

The Company will hold a conference call for investors and analysts at 11:00 a.m. Eastern Time on Tuesday, July 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 July 27 at 2:00 p.m. Eastern Time until August 3, 2010 at midnight Eastern Time. To access the replay, domestic callers should dial 888-286-8010 (passcode 30253927), and international callers should dial 617-801-6888 (passcode 30253927).

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

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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 $4.82 billion in capital at June 30, 2010, provides insurance and reinsurance on a worldwide basis through its wholly owned subsidiaries.

Cautionary Note Regarding Forward-Looking Statements

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

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

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

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

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

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

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

·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 June 30, 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;

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·severity and/or frequency of losses;

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

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

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

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

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

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

·the Company’s investment performance, 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.

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Comment on Regulation G

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

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

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

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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

SUPPLEMENTAL FINANCIAL INFORMATION

Book Value Per Common Share

	June 30,			December 31,
(U.S. dollars in thousands, except share data)	2010			2009
Calculation of book value per common share:
Total shareholders’ equity	$	4,398,003		$	4,323,349
Less preferred shareholders’ equity	(325,000		)	(325,000		)
Common shareholders’ equity	$	4,073,003		$	3,998,349
Common shares outstanding, net of treasury shares (1)	49,630,570			54,761,678
Book value per common share	$	82.07		$	73.01

(1)Excludes the effects of 4,650,209 and 5,016,104 stock options and 175,055 and 261,012 restricted stock units outstanding at June 30, 2010 and December 31, 2009, respectively.

Share Repurchase Activity

	Three Months Ended				Six Months Ended				Cumulative
	June 30,				June 30,				June 30,
(U.S. dollars in thousands, except share data)	2010		2009		2010		2009		2010
Effect of share repurchases:
Aggregate cost of shares repurchased	$	269,054	$	—	$	450,326	$	1,552	$	1,958,923
Shares repurchased	3,644,227		—		6,174,140		33,305		28,145,252
Average price per share repurchased	$	73.83	$	—	$	72.94	$	46.60	$	69.60
Estimated net accretive impact on diluted earnings per share (1)	$	0.63	$	0.37	$	0.97	$	0.78
Estimated net accretive impact on ending book value per common share (2)									$	4.51

(1)The estimated impact on diluted earnings per share was calculated comparing reported results versus (i) after-tax operating 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.

(2)As the cumulative average price per share of shares repurchased through June 30, 2010 was lower than the ending book value per common share, the repurchase of shares increased ending book value per common share.

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Investment Information

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(U.S. dollars in thousands, except share data)	2010			2009			2010			2009
Components of net investment income:
Fixed maturities and short-term investments	$	94,437		$	103,932		$	192,327		$	202,130
Securities lending transactions	39			684			106			1,702
Other	887			788			1,306			1,335
Gross investment income	95,363			105,404			193,739			205,167
Investment expense	(4,826		)	(4,919		)	(10,230		)	(8,800		)
Net investment income	$	90,537		$	100,485		$	183,509		$	196,367
Per share	$	1.70		$	1.60		$	3.37		$	3.14
Investment income yield, at amortized cost (1):
Pre-tax	3.48		%	3.91		%	3.46		%	3.87		%
After-tax	3.37		%	3.80		%	3.35		%	3.75		%
Cash flow from operations	$	205,514		$	223,742		$	390,137		$	518,545

(1)Investment income yield calculations exclude the impact of investments for which returns are not included within investment income, such as investments accounted for using the equity method and equities.

	June 30,			December 31,
(U.S. dollars in thousands)	2010			2009
Investable assets:
Fixed maturities available for sale, at market value	$	9,428,456		$	9,391,926
Fixed maturities pledged under securities lending agreements, at market value (1)	195,372			208,826
Total fixed maturities	9,623,828			9,600,752
Short-term investments available for sale, at market value	554,304			571,490
Short-term investments pledged under securities lending agreements, at market value (1)	19,192			3,993
Cash	341,469			334,571
TALF investments, at market value (2)	407,469			250,265
Other investments
Fixed income mutual funds	67,098			63,146
Other securities	273,500			109,027
Investment funds accounted for using the equity method (3)	408,402			391,869
Securities transactions entered into but not settled at the balance sheet date	(108,059		)	50,790
Total investable assets (1)	$	11,587,203		$	11,375,903
Fixed income portfolio (1):
Average effective duration (in years)	2.90			2.87
Average credit quality	AA+			AA+
Imbedded book yield on fixed maturities (before investment expenses)	3.39		%	3.64		%

(1)This table excludes the collateral received and reinvested 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						Six Months Ended
	June 30,						June 30,
(U.S. dollars in thousands)	2010			2009			2010			2009
Components of losses and loss adjustment expenses incurred
Paid losses and loss adjustment expenses	$	291,397		$	395,378		$	628,059		$	713,919
Increase in unpaid losses and loss adjustment expenses	71,748			3,480			163,137			85,481
Total losses and loss adjustment expenses	$	363,145		$	398,858		$	791,196		$	799,400
Estimated net (favorable) adverse development in prior year loss reserves, net of related adjustments
Net impact on underwriting results:
Insurance	$	(3,588	)	$	(18,997	)	$	2,818		$	(27,175	)
Reinsurance	(29,086		)	(42,795		)	(65,183		)	(82,488		)
Total	$	(32,674	)	$	(61,792	)	$	(62,365	)	$	(109,663	)
Impact on losses and loss adjustment expenses:
Insurance	$	(7,886	)	$	(18,689	)	$	(4,056	)	$	(27,815	)
Reinsurance	(29,053		)	(43,426		)	(65,557		)	(85,442		)
Total	$	(36,939	)	$	(62,115	)	$	(69,613	)	$	(113,257	)
Impact on acquisition expenses:
Insurance	$	4,298		$	(308	)	$	6,874		$	640
Reinsurance	(33		)	631			374			2,954
Total	$	4,265		$	323		$	7,248		$	3,594
Impact on combined ratio:
Insurance	(0.9		)%	(4.6		)%	0.3		%	(3.3		)%
Reinsurance	(13.4		)%	(15.2		)%	(14.2		)%	(14.2		)%
Total	(5.2		)%	(8.8		)%	(4.8		)%	(7.8		)%
Impact on loss ratio:
Insurance	(1.9		)%	(4.5		)%	(0.5		)%	(3.4		)%
Reinsurance	(13.4		)%	(15.4		)%	(14.3		)%	(14.7		)%
Total	(5.9		)%	(8.9		)%	(5.4		)%	(8.1		)%
Impact on acquisition expense ratio:
Insurance	1.0		%	(0.1		)%	0.8		%	0.1		%
Reinsurance	0.0		%	0.2		%	0.1		%	0.5		%
Total	0.7		%	0.1		%	0.6		%	0.3		%
Estimated net losses incurred from current accident year catastrophic events (1)
Insurance	$	3,337		$	—		$	27,299		$	—
Reinsurance	3,664			27			37,797			8,039
Total	$	7,001		$	27		$	65,096		$	8,039
Impact on loss ratio:
Insurance	0.8		%	0.0		%	3.3		%	0.0		%
Reinsurance	1.7		%	0.0		%	8.3		%	1.4		%
Total	1.1		%	0.0		%	5.0		%	0.6		%

(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 June 30, 2010 on the Company’s website at http://www.archcapgroup.bm/EarningsReleases.aspx.

Discussion of 2010 Second Quarter Performance

Insurance Segment

	Three Months Ended
	June 30,
(U.S. dollars in thousands)	2010			2009
Gross premiums written	$	616,353		$	636,645
Net premiums written	422,837			419,318
Net premiums earned	405,473			417,454
Underwriting income (loss)	(6,033		)	1,315
Loss ratio	67.9		%	68.8		%
Acquisition expense ratio	15.9		%	13.9		%
Other operating expense ratio	17.7		%	17.0		%
Combined ratio	101.5		%	99.7		%
Catastrophic activity and prior year development:
Current accident year catastrophic events	0.8		%	0.0		%
Net (favorable) adverse development in prior year loss reserves, net of related adjustments	(0.9		)%	(4.6		)%
Combined ratio excluding such items	101.6		%	104.3		%

Gross premiums written by the insurance segment in the 2010 second quarter were 3.2% lower than in the 2009 second quarter as reductions in commercial aviation, property and construction lines of business were partially offset by increases in alternative markets and collateral protection business. The reduction in commercial aviation business primarily resulted from a strategic decision to reduce exposure while the lower level of property and construction business was due to the current market environment. Growth in alternative markets business, which is significantly reinsured, primarily resulted from increased renewal premiums on existing accounts while the higher level of collateral protection business was generated through new business opportunities.

Net premiums written increased 0.8%, 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 second quarter were 2.9% lower than in the 2009 second quarter, and reflect changes in net premiums written over the previous five quarters.

The 2010 second quarter loss ratio included 0.8 points for current year catastrophic event activity, while the 2009 second quarter did not include any significant catastrophic activity. Estimated net favorable development, before related adjustments, reduced the loss ratio by 1.9 points in the 2010 second quarter, compared to 4.5 points in the 2009 second quarter. The estimated net favorable development in the 2010 second quarter primarily resulted from better than expected claims emergence from the 2006 to 2008 accident years, partially offset by adverse development in casualty claims from the 2003 to 2005 accident years and executive assurance business from the 2008 and 2009 accident years. In addition, the 2009 second quarter loss ratio included a higher level of large loss activity than the 2010 second quarter.

The underwriting expense ratio was 33.6% in the 2010 second quarter, compared to 30.9% in the 2009 second quarter. The acquisition expense ratio was 15.9% in the 2010 second quarter, compared to 13.9% in the 2009 second quarter. The 2010 second quarter ratio included 1.0 point related to prior year reserve development and also reflected changes in the form of reinsurance ceded and mix of business.  The operating expense ratio was 17.7% in the 2010 second quarter, compared to 17.0% in the 2009 second quarter, with the increase primarily due to a lower level of net premiums earned in the 2010 second quarter.

11

Reinsurance Segment

	Three Months Ended
	June 30,
(U.S. dollars in thousands)	2010			2009
Gross premiums written	$	203,695		$	278,389
Net premiums written	201,421			274,536
Net premiums earned	217,538			281,804
Underwriting income	68,277			88,309
Loss ratio	40.4		%	39.6		%
Acquisition expense ratio	19.4		%	23.1		%
Other operating expense ratio	8.9		%	6.0		%
Combined ratio	68.7		%	68.7		%
Catastrophic activity and prior year development:
Current accident year catastrophic events	1.7		%	0.0		%
Net (favorable) adverse development in prior year loss reserves, net of related adjustments	(13.4		)%	(15.2		)%
Combined ratio excluding such items	80.4		%	83.9		%

Gross premiums written by the reinsurance segment in the 2010 second quarter were 26.8% lower than in the 2009 second 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 and property catastrophe lines. Gross premiums written in the 2009 second quarter also included the renewal of a two-year treaty of approximately $43 million. Net premiums written by the reinsurance segment in the 2010 second quarter were 26.6% lower than in the 2009 second quarter, primarily due to the items noted above. Net premiums earned in the 2010 second quarter were 22.8% lower than in the 2009 second quarter, and reflect changes in net premiums written over the previous five quarters, including the mix and type of business written.

The 2010 second quarter loss ratio included 1.7 points related to current year catastrophic activity, while the 2009 second quarter did not include any significant catastrophic activity. Estimated net favorable development, before related adjustments, reduced the loss ratio by 13.4 points in the 2010 second quarter, compared to 15.4 points in the 2009 second quarter. The estimated net favorable development in the 2010 second quarter primarily resulted from better than expected claims emergence in property and other short-tail lines, primarily from the 2007 to 2009 underwriting years, and casualty business from the 2003 to 2005 underwriting years, partially offset by adverse development on casualty business from more recent underwriting years and marine business from the 2008 underwriting year. The balance of the change in the 2010 second quarter loss ratio reflected an increase in the underwriting profit of the reinsurance segment’s property facultative operations and changes in the mix of business.

The underwriting expense ratio was 28.3% in the 2010 second quarter, compared to 29.1% in the 2009 second quarter. The acquisition expense ratio for the 2010 second quarter was 19.4%, compared to 23.1% for the 2009 second quarter. The comparison of the 2010 second quarter and 2009 second quarter acquisition expense ratios is influenced by, among other things, the mix and type of business written and earned and the level of ceding commission income. The 2010 second quarter other operating expense ratio of 8.9% was consistent with the 2010 first quarter ratio and primarily resulted from the lower level of net premiums earned than in the 2009 second quarter.

12

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

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

	(Unaudited)						(Unaudited)
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Revenues
Net premiums written	$	624,258		$	693,854		$	1,392,012		$	1,516,717
Increase in unearned premiums	(1,247		)	5,404			(99,084		)	(116,895		)
Net premiums earned	623,011			699,258			1,292,928			1,399,822
Net investment income	90,537			100,485			183,509			196,367
Net realized gains (losses)	62,114			(11,793		)	109,896			(16,957		)
Other-than-temporary impairment losses	(4,718		)	(20,657		)	(7,054		)	(113,646		)
Less investment impairments recognized in other comprehensive income, before taxes	308			(206		)	1,038			56,649
Net impairment losses recognized in earnings	(4,410		)	(20,863		)	(6,016		)	(56,997		)
Fee income	883			817			1,677			1,742
Equity in net income (loss) of investment funds accounted for using the equity method	(348		)	75,890			28,702			66,309
Other income	4,528			4,950			10,506			8,901
Total revenues	776,315			848,744			1,621,202			1,599,187
Losses and loss adjustment expenses	363,145			398,858			791,196			799,400
Acquisition expenses	107,475			123,814			225,099			250,272
Other operating expenses	101,533			99,294			208,339			186,410
Interest expense	7,916			5,712			15,176			11,424
Net foreign exchange (gains) losses	(48,625		)	53,658			(87,226		)	28,453
Total expenses	531,444			681,336			1,152,584			1,275,959
Income before income taxes	244,871			167,408			468,618			323,228
Income tax expense	1,420			8,818			8,173			18,308
Net Income	243,451			158,590			460,445			304,920
Preferred dividends	6,461			6,461			12,922			12,922
Net income available to common shareholders	$	236,990		$	152,129		$	447,523		$	291,998
Net income per common share
Basic	$	4.65		$	2.52		$	8.60		$	4.84
Diluted	$	4.45		$	2.43		$	8.23		$	4.67
Weighted average common shares and common share equivalents outstanding
Basic	50,987,540			60,417,391			52,007,616			60,365,758
Diluted	53,265,303			62,626,317			54,386,690			62,589,856

13

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

	(Unaudited)
	June 30,			December 31,
	2010			2009
Assets
Investments:
Fixed maturities available for sale, at market value (amortized cost: $9,214,640 and $9,227,432)	$	9,428,456		$	9,391,926
Short-term investments available for sale, at market value (amortized cost: $558,283 and $570,469)	554,304			571,489
Investment of funds received under securities lending agreements, at market value (amortized cost: $211,456 and $96,590)	209,635			91,160
TALF investments, at market value (amortized cost: $396,499 and $247,192)	407,469			250,265
Other investments (cost: $337,141 and $162,505)	340,598			172,172
Investment funds accounted for using the equity method	408,402			391,869
Total investments	11,348,864			10,868,881
Cash	341,469			334,571
Accrued investment income	72,102			70,673
Investment in joint venture (cost: $100,000)	103,540			102,855
Fixed maturities and short-term investments pledged under securities lending agreements, at market value	214,564			212,820
Securities purchased under agreements to resell using funds received under securities lending agreements	—			115,839
Premiums receivable	706,503			595,030
Unpaid losses and loss adjustment expenses recoverable	1,673,911			1,659,500
Paid losses and loss adjustment expenses recoverable	47,148			60,770
Prepaid reinsurance premiums	256,952			277,985
Deferred acquisition costs, net	293,982			280,372
Receivable for securities sold	1,084,122			187,171
Other assets	634,242			609,323
Total Assets	$	16,777,399		$	15,375,790
Liabilities
Reserve for losses and loss adjustment expenses	$	7,940,104		$	7,873,412
Unearned premiums	1,492,550			1,433,331
Reinsurance balances payable	128,723			156,500
Senior notes	300,000			300,000
Revolving credit agreement borrowings	125,000			100,000
TALF borrowings, at market value (par: $337,937 and $218,740)	336,213			217,565
Securities lending payable	219,796			219,116
Payable for securities purchased	1,192,181			136,381
Other liabilities	644,829			616,136
Total Liabilities	12,379,396			11,052,441
Commitments and Contingencies
Shareholders’ Equity
Non-cumulative preferred shares - Series A and B	325,000			325,000
Common shares ($0.01 par, shares issued: 52,864,928 and 54,761,678)	529			548
Additional paid-in capital	83,828			253,466
Retained earnings	4,053,332			3,605,809
Accumulated other comprehensive income, net of deferred income tax	173,231			138,526
Common shares held in treasury, at cost (shares: 3,234,358 and 0)	(237,917		)	—
Total Shareholders’ Equity	4,398,003			4,323,349
Total Liabilities and Shareholders’ Equity	16,777,399			$	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 June 30, 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	8-9
	c.	Insurance Segment Underwriting Results	10-11
	d.	Reinsurance Segment Underwriting Results	12-13
IV.	Investment Information
	a.	Investable Asset Summary, Fixed Income Metrics and Credit Quality Distribution	14
	b.	Composition of Fixed Maturities and Analysis of Corporate Exposures	15
	c.	Mortgage Backed, Commercial Mortgage Backed and Asset Backed Securities	16
	d.	Bank Loans	17
V.	Other
	a.	Comments on Regulation G	18
	b.	Operating Income Reconciliation	19
	c.	Share Repurchase Activity	20
	d.	Annualized Operating Return on Average Common Equity	21
	e.	Capital Structure	22

Arch Capital Group Ltd. and Subsidiaries

Cautionary Note Regarding Forward-Looking Statements

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

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

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

Arch Capital Group Ltd. and Subsidiaries

Financial Highlights

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

	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2010			2009			Change		2010			2009			Change
Gross premiums written	$	817,100		$	911,920		(10.4	)%	$	1,770,787		$	1,936,891		(8.6	)%
Net premiums written	$	624,258		$	693,854		(10.0	)%	$	1,392,012		$	1,516,717		(8.2	)%
Net premiums earned	$	623,011		$	699,258		(10.9	)%	$	1,292,928		$	1,399,822		(7.6	)%
Underwriting income	$	62,244		$	89,624		(30.5	)%	$	86,162		$	183,013		(52.9	)%
Net investment income	$	90,537		$	100,485		(9.9	)%	$	183,509		$	196,367		(6.5	)%
Per diluted share	$	1.70		$	1.60		6.3	%	$	3.37		$	3.14		7.3	%
Net income available to common shareholders	$	236,990		$	152,129		55.8	%	$	447,523		$	291,998		53.3	%
Per diluted share	$	4.45		$	2.43		83.1	%	$	8.23		$	4.67		76.2	%
After-tax operating income available to common shareholders (1)	$	132,182		$	163,041		(18.9	)%	$	230,913		$	332,042		(30.5	)%
Per diluted share	$	2.48		$	2.60		(4.6	)%	$	4.25		$	5.31		(20.0	)%
Comprehensive income	$	275,720		$	396,130		(30.4	)%	$	495,150		$	598,190		(17.2	)%
Cash flow from operations	$	205,514		$	223,742		(8.1	)%	$	390,137		$	518,545		(24.8	)%
Diluted weighted average common shares and common share equivalents outstanding	53,265,303			62,626,317			(14.9	)%	54,386,690			62,589,856			(13.1	)%
Underwriting ratios:
Loss ratio	58.3		%	57.0		%	1.3	%	61.2		%	57.1		%	4.1	%
Acquisition expense ratio	17.1		%	17.6		%	(0.5	)%	17.3		%	17.8		%	(0.5	)%
Other operating expense ratio	14.6		%	12.6		%	2.0	%	14.9		%	12.1		%	2.8	%
Combined ratio	90.0		%	87.2		%	2.8	%	93.4		%	87.0		%	6.4	%
Financial measures:
Growth in book value per common share	6.7		%	11.3		%	(40.4	)%	12.4		%	18.3		%	(32.2	)%
Annualized operating return on average common equity	13.0		%	18.6		%	(30.1	)%	11.4		%	19.5		%	(41.5	)%
Total return on investments (2)	1.74		%	3.89		%	-215	bps	3.35		%	5.03		%	-168	bps

(1) See page 18, 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																											Six Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			June 30,			June 30,
	2010			2010			2009			2009			2009			2009			2008			2008			2008			2010			2009
Gross premiums written	$	817,100		$	953,687		$	718,712		$	937,328		$	911,920		1,024,971			$	825,465		$	903,533		$	886,926		$	1,770,787		$	1,936,891
Net premiums written	624,258			767,754			519,087			727,308			693,854			822,863			615,574			692,692			686,118			1,392,012			1,516,717
Net premiums earned	$	623,011		$	669,917		$	708,538		$	734,385		$	699,258		$	700,564		$	698,514		$	733,031		$	705,675		$	1,292,928		$	1,399,822
Fee income	883			794			894			826			817			925			1,456			944			1,238			1,677			1,742
Losses and loss adjustment expenses	(363,145		)	(428,051		)	(410,360		)	(444,914		)	(398,858		)	(400,542		)	(490,816		)	(548,886		)	(404,625		)	(791,196		)	(799,400		)
Acquisition expenses, net	(107,475		)	(117,624		)	(120,549		)	(122,739		)	(123,814		)	(126,458		)	(123,231		)	(133,413		)	(119,226		)	(225,099		)	(250,272		)
Other operating expenses	(91,030		)	(101,118		)	(99,305		)	(93,723		)	(87,779		)	(81,100		)	(93,580		)	(90,192		)	(91,657		)	(192,148		)	(168,879		)
Underwriting income (loss)	62,244			23,918			79,218			73,835			89,624			93,389			(7,657		)	(38,516		)	91,405			86,162			183,013
Net investment income	90,537			92,972			93,551			100,213			100,485			95,882			111,745			117,022			117,120			183,509			196,367
Net realized gains (losses)	62,114			47,782			89,901			70,638			(11,793		)	(5,164		)	(27,704		)	(23,001		)	(1,920		)	109,896			(16,957		)
Net impairment losses recognized in earnings	(4,410		)	(1,606		)	(4,493		)	(4,643		)	(20,863		)	(36,134		)	(75,169		)	(82,533		)	(10,749		)	(6,016		)	(56,997		)
Equity in net income (loss) of investment funds accounted for using the equity method	(348		)	29,050			32,391			69,119			75,890			(9,581		)	(174,147		)	(1,731		)	19,583			28,702			66,309
Other income	4,528			5,978			5,428			5,687			4,950			3,951			211			3,067			4,968			10,506			8,901
Other expenses	(10,503		)	(5,688		)	(6,680		)	(6,020		)	(11,515		)	(6,016		)	(6,805		)	(5,460		)	(10,921		)	(16,191		)	(17,531		)
Interest expense	(7,916		)	(7,260		)	(7,015		)	(6,001		)	(5,712		)	(5,712		)	(6,285		)	(6,241		)	(5,788		)	(15,176		)	(11,424		)
Net foreign exchange gains (losses)	48,625			38,601			9,051			(19,755		)	(53,658		)	25,205			51,479			68,395			298			87,226			(28,453		)
Income (loss) before income taxes	244,871			223,747			291,352			283,073			167,408			155,820			(134,332		)	31,002			203,996			468,618			323,228
Income tax (expense) benefit	(1,420		)	(6,753		)	(195		)	(2,205		)	(8,818		)	(9,490		)	(2,179		)	1,849			(5,253		)	(8,173		)	(18,308		)
Net income (loss)	243,451			216,994			291,157			280,868			158,590			146,330			(136,511		)	32,851			198,743			460,445			304,920
Preferred dividends	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(12,922		)	(12,922		)
Net income (loss) available to common shareholders	$	236,990		$	210,533		$	284,696		$	274,407		$	152,129		$	139,869		$	(142,972	)	$	26,390		$	192,282		$	447,523		$	291,998
Underwriting Ratios
Loss ratio	58.3		%	63.9		%	57.9		%	60.6		%	57.0		%	57.2		%	70.3		%	74.9		%	57.3		%	61.2		%	57.1		%
Acquisition expense ratio	17.1		%	17.4		%	16.9		%	16.6		%	17.6		%	17.9		%	17.5		%	18.1		%	16.8		%	17.3		%	17.8		%
Other operating expense ratio	14.6		%	15.1		%	14.0		%	12.8		%	12.6		%	11.6		%	13.4		%	12.3		%	13.0		%	14.9		%	12.1		%
Combined ratio	90.0		%	96.4		%	88.8		%	90.0		%	87.2		%	86.7		%	101.2		%	105.3		%	87.1		%	93.4		%	87.0		%
Net premiums written to gross premiums written	76.4		%	80.5		%	72.2		%	77.6		%	76.1		%	80.3		%	74.6		%	76.7		%	77.4		%	78.6		%	78.3		%
Net income (loss) per common share
Basic	$	4.65		$	3.97		$	4.96		$	4.56		$	2.52		$	2.32		$	(2.38	)	$	0.44		$	3.05		$	8.60		$	4.84
Diluted	$	4.45		$	3.79		$	4.75		$	4.39		$	2.43		$	2.24		$	(2.38	)	$	0.42		$	2.92		$	8.23		$	4.67
Weighted average common shares and common share equivalents outstanding
Basic	50,987,540			53,039,026			57,379,974			60,156,219			60,417,391			60,313,550			60,048,258			60,109,932			62,995,550			52,007,616			60,365,758
Diluted	53,265,303			55,513,827			59,910,667			62,533,816			62,626,317			62,559,969			60,048,258			62,830,910			65,748,119			54,386,690			62,589,856

2

Arch Capital Group Ltd. and Subsidiaries

Consolidated Balance Sheets

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

	June 30,			March 31,		December 31,		September 30,		June 30,			March 31,			December 31,			December 31,
	2010			2010		2009		2009		2009			2009			2008			2007
Assets
Investments:
Fixed maturities available for sale, at market value	$	9,428,456		$	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	554,304			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)	209,635			177,954		91,160		252,500		309,000			378,071			473,766			1,084,906
TALF investments, at market value (2)	407,469			406,997		250,265		250,517		—			—			—			—
Other investments	340,598			263,608		172,172		154,526		115,260			104,988			109,601			353,694
Investment funds accounted for using the equity method	408,402			405,584		391,869		376,381		370,165			293,452			301,027			235,975
Total investments	11,348,864			11,219,621		10,868,881		11,006,042		10,399,394			10,066,872			9,486,201			9,511,609
Cash	341,469			338,708		334,571		385,149		336,693			244,037			251,739			239,915
Accrued investment income	72,102			74,214		70,673		77,762		70,854			65,365			78,052			73,862
Investment in joint venture	103,540			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	214,564			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	706,503			699,385		595,030		697,806		735,969			720,724			628,951			729,628
Unpaid losses and loss adjustment expenses recoverable	1,673,911			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	47,148			67,734		60,770		58,588		53,432			76,312			63,294			132,289
Prepaid reinsurance premiums	256,952			250,841		277,985		283,290		283,488			274,578			303,707			480,462
Deferred acquisition costs, net	293,982			298,371		280,372		303,826		307,896			313,973			295,192			290,059
Receivable for securities sold	1,084,122			1,427,085		187,171		998,431		1,192,659			1,191,896			105,073			17,359
Other assets	634,242			628,407		609,323		592,701		613,788			594,165			592,367			657,603
Total Assets	$	16,777,399		$	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	7,940,104			$	7,898,162	$	7,873,412	$	7,879,586	$	7,809,034		$	7,709,317		$	7,666,957		$	7,092,452
Unearned premiums	1,492,550			1,495,265		1,433,331		1,627,519		1,632,989			1,617,431			1,526,682			1,765,881
Reinsurance balances payable	128,723			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			300,000
Revolving credit agreement borrowings	125,000			100,000		100,000		100,000		100,000			100,000			100,000			—
TALF borrowings, at market value (2)	336,213			346,746		217,565		219,843		—			—			—			—
Securities lending payable	219,796			189,024		219,116		625,706		574,014			574,337			753,528			1,503,723
Payable for securities purchased	1,192,181			1,429,529		136,381		1,197,411		1,432,395			1,433,732			123,309			23,155
Other liabilities	644,829			683,369		616,136		612,369		604,561			580,093			574,595			601,936
Total Liabilities	12,379,396			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 - Series A and B	325,000			325,000		325,000		325,000		325,000			325,000			325,000			325,000
Common shares	529			527		548		595		610			605			605			673
Additional paid-in capital	83,828			95,926		253,466		592,334		681,445			671,547			669,715			1,126,797
Retained earnings	4,053,332			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	173,231			140,962		138,526		221,780		(23,793		)	(261,333		)	(255,594		)	155,224
Common shares held in treasury, at cost	(237,917		)	—		—		—		—			—			—			—
Total Shareholders’ Equity	4,398,003			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	$	16,777,399		$	16,935,106	$	15,375,790	$	17,183,154	$	16,641,935		$	16,092,287		$	14,616,545		$	15,624,267
Common shares outstanding, net of treasury shares (3)	49,630,570			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	$	82.07		$	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 14 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																											Six Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			June 30,			June 30,
	2010			2010			2009			2009			2009			2009			2008			2008			2008			2010			2009
Non-Cumulative Preferred Shares - Series A and B
Balance at beginning and end of period	$	325,000		$	325,000		$	325,000		$	325,000		$	325,000		$	325,000		$	325,000		$	325,000		$	325,000		$	325,000		$	325,000
Common Shares
Balance at beginning of period	527			548			595			610			605			605			602			619			646			548			605
Common shares issued, net	7			4			4			1			5			0			3			1			2			11			5
Purchases of common shares under share repurchase program	(5		)	(25		)	(51		)	(16		)	(0		)	(0		)	—			(18		)	(29		)	(30		)	(0		)
Balance at end of period	529			527			548			595			610			605			605			602			619			529			610
Additional Paid-in Capital
Balance at beginning of period	95,926			253,466			592,334			681,445			671,547			669,715			652,189			764,766			944,951			253,466			669,715
Common shares issued	3,275			14			1,173			0			2,557			0			996			0			3,511			3,289			2,557
Exercise of stock options	7,964			16,700			12,380			2,905			705			528			10,593			4,146			5,324			24,664			1,233
Common shares retired	(36,212		)	(181,350		)	(358,611		)	(98,632		)	(2,483		)	(3,760		)	(39		)	(123,510		)	(201,498		)	(217,562		)	(6,243		)
Amortization of share-based compensation	12,280			7,096			6,199			6,576			9,949			4,318			5,974			6,792			12,911			19,376			14,267
Other	595			—			(9		)	40			(830		)	746			2			(5		)	(433		)	595			(84		)
Balance at end of period	83,828			95,926			253,466			592,334			681,445			671,547			669,715			652,189			764,766			83,828			681,445
Retained Earnings
Balance at beginning 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			3,605,809			2,693,239
Cumulative effect of change in accounting principle (1)	—			—			—			—			—			61,469			—			—			—			—			61,469
Balance at beginning of period, as adjusted	3,816,342			3,605,809			3,321,113			3,046,706			2,894,577			2,754,708			2,836,211			2,809,821			2,617,539			3,605,809			2,754,708
Dividends declared on preferred shares	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(12,922		)	(12,922		)
Net income (loss)	243,451			216,994			291,157			280,868			158,590			146,330			(136,511		)	32,851			198,743			460,445			304,920
Balance at end of period	4,053,332			3,816,342			3,605,809			3,321,113			3,046,706			2,894,577			2,693,239			2,836,211			2,809,821			4,053,332			3,046,706
Accumulated Other Comprehensive Income (Loss)
Balance at beginning of period	140,962			138,526			221,780			(23,793		)	(261,333		)	(255,594		)	(297,292		)	(13,973		)	116,408			138,526			(255,594		)
Cumulative effect of change in accounting principle (1)	—			—			—			—			—			(61,469		)	—			—			—			—			(61,469		)
Balance at beginning of period, as adjusted	140,962			138,526			221,780			(23,793		)	(261,333		)	(317,063		)	(297,292		)	(13,973		)	116,408			138,526			(317,063		)
Change in unrealized appreciation (decline) in value of investments, net of deferred income tax	38,476			5,240			(83,840		)	248,581			241,588			119,277			64,976			(271,231		)	(131,446		)	43,716			360,865
Portion of other-than-temporary impairment losses recognized in other comprehensive income, net of deferred income tax	(308		)	(730		)	(353		)	(3,217		)	(16,518		)	(61,288		)	—			—			—			(1,038		)	(77,806		)
Foreign currency translation adjustments, net of deferred income tax	(5,899		)	(2,074		)	939			209			12,470			(2,259		)	(23,278		)	(12,088		)	1,065			(7,973		)	10,211
Balance at end of period	173,231			140,962			138,526			221,780			(23,793		)	(261,333		)	(255,594		)	(297,292		)	(13,973		)	173,231			(23,793		)
Common Shares Held in Treasury, at Cost
Balance at beginning of period	—			—			—			—			—			—			—			—			—			—			—
Shares repurchased for treasury	(237,917		)	—			—			—			—			—			—			—			—			(237,917		)	—
Balance at end of period	(237,917		)	—			—			—			—			—			—			—			—			(237,917		)	—
Total Shareholders’ Equity	$	4,398,003		$	4,378,757		$	4,323,349		$	4,460,822		$	4,029,968		$	3,630,396		$	3,432,965		$	3,516,710		$	3,886,233		$	4,398,003		$	4,029,968

(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																											Six Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			June 30,			June 30,
	2010			2010			2009			2009			2009			2009			2008			2008			2008			2010			2009
Comprehensive Income (Loss)
Net income (loss)	$	243,451		$	216,994		$	291,157		$	280,868		$	158,590		$	146,330		$	(136,511	)	$	32,851		$	198,743		$	460,445		$	304,920
Other comprehensive income (loss), net of deferred income tax
Unrealized holding gains (losses) arising during period	71,087			42,847			(8,954		)	300,733			219,648			62,757			(69,067		)	(386,052		)	(139,831		)	113,934			282,405
Portion of other-than-temporary impairment losses recognized in other comprehensive income, net of deferred income tax	(308		)	(730		)	(353		)	(3,217		)	(16,518		)	(61,288		)	—			—			—			(1,038		)	(77,806		)
Reclassification of net realized (gains) losses, net of income taxes, included in net income	(32,611		)	(37,607		)	(74,886		)	(52,152		)	21,940			56,520			134,043			114,821			8,385			(70,218		)	78,460
Foreign currency translation adjustments	(5,899		)	(2,074		)	939			209			12,470			(2,259		)	(23,278		)	(12,088		)	1,065			(7,973		)	10,211
Other comprehensive income (loss)	32,269			2,436			(83,254		)	245,573			237,540			55,730			41,698			(283,319		)	(130,381		)	34,705			293,270
Comprehensive Income (Loss)	$	275,720		$	219,430		$	207,903		$	526,441		$	396,130		$	202,060		$	(94,813	)	$	(250,468	)	$	68,362		$	495,150		$	598,190

5

Arch Capital Group Ltd. and Subsidiaries

Consolidated Statements of Cash Flows

(U.S. dollars in thousands)

	Three Months Ended																											Six Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			June 30,			June 30,
	2010			2010			2009			2009			2009			2009			2008			2008			2008			2010			2009
Operating Activities
Net income (loss)	$	243,451		$	216,994		$	291,157		$	280,868		$	158,590		$	146,330		$	(136,511	)	$	32,851		$	198,743		$	460,445		$	304,920
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized (gains) losses	(62,406		)	(49,483		)	(70,680		)	(70,612		)	11,831			5,620			28,383			23,916			2,955			(111,889		)	17,451
Net impairment losses included in earnings	4,410			1,606			4,493			4,643			20,863			36,134			75,169			82,533			10,749			6,016			56,997
Equity in net (income) loss of investment funds accounted for using the equity method and other income	(3,368		)	(15,012		)	(37,819		)	(74,985		)	(80,662		)	10,428			173,955			(1,336		)	(24,286		)	(18,380		)	(70,234		)
Share-based compensation	12,280			7,096			6,199			6,576			9,949			4,318			5,974			6,792			12,911			19,376			14,267
Changes in:
Reserve for losses and loss adjustment expenses, net of unpaid losses and loss adjustment expenses recoverable	71,357			91,247			50,992			79,701			5,151			83,763			226,284			153,860			95,859			162,604			88,914
Unearned premiums, net of prepaid reinsurance premiums	236			96,645			(188,951		)	(6,983		)	(4,775		)	120,867			(75,899		)	(51,494		)	(20,133		)	96,881			116,092
Premiums receivable	(20,280		)	(116,571		)	99,023			41,108			(916		)	(94,777		)	18,896			115,653			21,679			(136,851		)	(95,693		)
Deferred acquisition costs, net	2,038			(19,655		)	23,636			4,356			8,513			(18,933		)	10,955			9,229			(8,491		)	(17,617		)	(10,420		)
Reinsurance balances payable	19,267			(36,669		)	(1,467		)	(85		)	6,187			11,278			(31,791		)	(74,317		)	(67,451		)	(17,402		)	17,465
Other liabilities	(57,219		)	41,448			(26,439		)	(5,849		)	5,189			2,802			(131,774		)	2,140			7,791			(15,771		)	7,991
Other items, net	(4,252		)	(33,023		)	33,839			31,381			83,822			(13,027		)	2,460			82,362			25,937			(37,275		)	70,795
Net Cash Provided By Operating Activities	205,514			184,623			183,983			290,119			223,742			294,803			166,101			382,189			256,263			390,137			518,545
Investing Activities
Purchases of:
Fixed maturity investments	(4,885,606		)	(4,597,713		)	(5,221,819		)	(6,675,195		)	(6,336,120		)	(3,037,132		)	(6,221,128		)	(3,878,230		)	(3,253,015		)	(9,483,319		)	(9,373,252		)
Other investments	(172,358		)	(185,102		)	(220,068		)	(8,528		)	(9,681		)	(22,670		)	(254,729		)	(38,036		)	(40,837		)	(357,460		)	(32,351		)
Proceeds from the sales of:
Fixed maturity investments	4,668,666			4,443,108			5,054,102			6,066,081			5,875,303			2,782,462			5,664,590			3,664,084			3,036,546			9,111,774			8,657,765
Other investments	112,579			101,235			236,009			48,085			(4,233		)	24,027			224,466			146,388			24,098			213,814			19,794
Proceeds from redemptions and maturities of fixed maturities	244,312			212,625			146,480			261,604			208,276			168,758			137,665			127,312			180,437			456,937			377,034
Net (purchases) sales of short-term investments	96,239			(102,921		)	129,070			(48,395		)	143,819			(204,924		)	312,038			(280,724		)	(13,462		)	(6,682		)	(61,105		)
Change in investment of securities lending collateral	(30,772		)	30,092			406,590			(51,692		)	323			179,191			196,799			(32,120		)	310,661			(680		)	179,514
Investment in joint venture	—			—			—			—			—			—			—			—			(100,000		)	—			—
Purchases of furniture, equipment and other	(6,057		)	(1,803		)	(3,897		)	(4,067		)	(3,872		)	(7,647		)	(2,745		)	(1,772		)	(1,939		)	(7,860		)	(11,519		)
Net Cash Provided By (Used For) Investing Activities	27,003			(100,479		)	526,467			(412,107		)	(126,185		)	(117,935		)	56,956			(293,098		)	142,489			(73,476		)	(244,120		)
Financing Activities
Purchases of common shares under share repurchase program	(269,054		)	(181,272		)	(358,656		)	(98,194		)	—			(1,552		)	—			(123,377		)	(199,910		)	(450,326		)	(1,552		)
Proceeds from common shares issued, net	3,779			10,591			9,194			2,152			308			(1,688		)	10,497			3,334			5,510			14,370			(1,380		)
Proceeds from borrowings	50,000			214,526			—			269,843			—			—			—			—			100,000			264,526			—
Repayments of borrowings	(34,022		)	(86,317		)	(1,103		)	(50,000		)	—			—			—			—			—			(120,339		)	—
Change in securities lending collateral	30,772			(30,092		)	(406,590		)	51,692			(323		)	(179,191		)	(196,799		)	32,120			(310,661		)	680			(179,514		)
Other	2,296			5,061			4,816			88			(1,291		)	742			698			502			616			7,357			(549		)
Preferred dividends paid	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(12,922		)	(12,922		)
Net Cash Provided By (Used For) Financing Activities	(222,690		)	(73,964		)	(758,800		)	169,120			(7,767		)	(188,150		)	(192,065		)	(93,882		)	(410,906		)	(296,654		)	(195,917		)
Effects of exchange rate changes on foreign currency cash	(7,066		)	(6,043		)	(2,228		)	1,324			2,866			3,580			(18,350		)	(2,656		)	18			(13,109		)	6,446
Increase (decrease) in cash	2,761			4,137			(50,578		)	48,456			92,656			(7,702		)	12,642			(7,447		)	(12,136		)	6,898			84,954
Cash beginning of period	338,708			334,571			385,149			336,693			244,037			251,739			239,097			246,544			258,680			334,571			251,739
Cash end of period	341,469			$	338,708		$	334,571		$	385,149		$	336,693		$	244,037		$	251,739		$	239,097		$	246,544		$	341,469		$	336,693
Income taxes paid (received), net	$	1,430		$	704		$	5,021		$	4,234		$	19,887		$	2,231		$	(994	)	$	7,124		$	2,723		$	2,134		$	22,118
Interest paid	$	13,437		$	1,785		$	12,556		$	529		$	11,312		$	184		$	11,802		$	724		$	11,259		$	15,222		$	11,496

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 June 30, 2010 and 2009

(U.S. dollars in thousands)

	Three Months Ended									Three Months Ended
	June 30, 2010									June 30, 2009
	Insurance			Reinsurance			Total			Insurance			Reinsurance			Total
Gross premiums written (1)	$	616,353		$	203,695		$	817,100		$	636,645		$	278,389		$	911,920
Net premiums written	422,837			201,421			624,258			419,318			274,536			693,854
Net premiums earned	$	405,473		$	217,538		$	623,011		$	417,454		$	281,804		$	699,258
Fee income	874			9			883			795			22			817
Losses and loss adjustment expenses	(275,294		)	(87,851		)	(363,145		)	(287,350		)	(111,508		)	(398,858		)
Acquisition expenses, net	(65,359		)	(42,116		)	(107,475		)	(58,748		)	(65,066		)	(123,814		)
Other operating expenses	(71,727		)	(19,303		)	(91,030		)	(70,836		)	(16,943		)	(87,779		)
Underwriting income (loss)	$	(6,033	)	$	68,277		62,244			$	1,315		$	88,309		89,624
Net investment income							90,537									100,485
Net realized gains (losses)							62,114									(11,793		)
Net impairment losses recognized in earnings							(4,410		)							(20,863		)
Equity in net income (loss) of investment funds accounted for using the equity method							(348		)							75,890
Other income							4,528									4,950
Other expenses							(10,503		)							(11,515		)
Interest expense							(7,916		)							(5,712		)
Net foreign exchange gains (losses)							48,625									(53,658		)
Income before income taxes							244,871									167,408
Income tax expense							(1,420		)							(8,818		)
Net income							243,451									158,590
Preferred dividends							(6,461		)							(6,461		)
Net income available to common shareholders							$	236,990								$	152,129
Underwriting Ratios
Loss ratio	67.9		%	40.4		%	58.3		%	68.8		%	39.6		%	57.0		%
Acquisition expense ratio (2)	15.9		%	19.4		%	17.1		%	13.9		%	23.1		%	17.6		%
Other operating expense ratio	17.7		%	8.9		%	14.6		%	17.0		%	6.0		%	12.6		%
Combined ratio	101.5		%	68.7		%	90.0		%	99.7		%	68.7		%	87.2		%
Net premiums written to gross premiums written	68.6		%	98.9		%	76.4		%	65.9		%	98.6		%	76.1		%

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

8

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Six Months Ended June 30, 2010 and 2009

(U.S. dollars in thousands)

	Six Months Ended									Six Months Ended
	June 30, 2010									June 30, 2009
	Insurance			Reinsurance			Total			Insurance			Reinsurance			Total
Gross premiums written (1)	$	1,249,929		$	527,172		$	1,770,787		$	1,275,054		$	668,518		$	1,936,891
Net premiums written	875,761			516,251			1,392,012			860,904			655,813			1,516,717
Net premiums earned	$	834,950		$	457,978		$	1,292,928		$	818,551		$	581,271		$	1,399,822
Fee income	1,627			50			1,677			1,665			77			1,742
Losses and loss adjustment expenses	(587,305		)	(203,891		)	(791,196		)	(557,365		)	(242,035		)	(799,400		)
Acquisition expenses, net	(132,790		)	(92,309		)	(225,099		)	(116,371		)	(133,901		)	(250,272		)
Other operating expenses	(152,447		)	(39,701		)	(192,148		)	(133,744		)	(35,135		)	(168,879		)
Underwriting income (loss)	$	(35,965	)	$	122,127		86,162			$	12,736		$	170,277		183,013
Net investment income							183,509									196,367
Net realized gains (losses)							109,896									(16,957		)
Net impairment losses recognized in earnings							(6,016		)							(56,997		)
Equity in net income (loss) of investment funds accounted for using the equity method							28,702									66,309
Other income							10,506									8,901
Other expenses							(16,191		)							(17,531		)
Interest expense							(15,176		)							(11,424		)
Net foreign exchange gains (losses)							87,226									(28,453		)
Income before income taxes							468,618									323,228
Income tax expense							(8,173		)							(18,308		)
Net income							460,445									304,920
Preferred dividends							(12,922		)							(12,922		)
Net income available to common shareholders							$	447,523								$	291,998
Underwriting Ratios
Loss ratio	70.3		%	44.5		%	61.2		%	68.1		%	41.6		%	57.1		%
Acquisition expense ratio (2)	15.7		%	20.2		%	17.3		%	14.0		%	23.0		%	17.8		%
Other operating expense ratio	18.3		%	8.7		%	14.9		%	16.3		%	6.0		%	12.1		%
Combined ratio	104.3		%	73.4		%	93.4		%	98.4		%	70.6		%	87.0		%
Net premiums written to gross premiums written	70.1		%	97.9		%	78.6		%	67.5		%	98.1		%	78.3		%

(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.

9

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Insurance Segment

(U.S. dollars in thousands)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
	Amount		% of Total	Amount		% of Total	Amount		% of Total	Amount		% of Total
Net premiums written
Property, energy, marine and aviation	$	88,194	20.9	$	86,385	20.6	$	188,859	21.6	$	192,414	22.4
Programs	73,345		17.3	72,279		17.2	143,843		16.4	147,086		17.1
Professional liability	64,089		15.2	57,773		13.8	122,815		14.0	109,781		12.8
Executive assurance	52,892		12.5	52,919		12.6	114,247		13.0	102,998		12.0
Construction	50,435		11.9	56,190		13.4	86,757		9.9	92,761		10.8
Casualty	26,617		6.3	27,217		6.5	52,080		5.9	53,756		6.2
Travel and accident	15,272		3.6	19,557		4.7	37,078		4.2	37,091		4.3
National accounts casualty	3,877		0.9	7,582		1.8	34,686		4.0	31,809		3.7
Healthcare	9,989		2.4	9,667		2.3	18,513		2.1	20,886		2.4
Surety	7,012		1.7	9,254		2.2	15,103		1.7	20,612		2.4
Other (1)	31,115		7.3	20,495		4.9	61,780		7.2	51,710		5.9
Total	$	422,837	100.0	$	419,318	100.0	$	875,761	100.0	$	860,904	100.0
Net premiums earned
Property, energy, marine and aviation	$	80,818	19.9	$	78,570	18.8	$	175,855	21.1	$	152,410	18.6
Programs	68,381		16.9	71,809		17.2	134,540		16.1	138,478		16.9
Professional liability	57,903		14.3	56,549		13.5	120,148		14.4	114,783		14.0
Executive assurance	55,143		13.6	52,288		12.5	111,465		13.3	100,104		12.2
Construction	33,536		8.3	43,364		10.4	68,021		8.1	83,784		10.2
Casualty	28,148		6.9	31,246		7.5	56,217		6.7	63,944		7.8
Travel and accident	17,590		4.3	18,198		4.4	33,668		4.0	31,354		3.8
National accounts casualty	16,810		4.1	13,079		3.1	38,583		4.6	27,518		3.4
Healthcare	10,340		2.6	10,830		2.6	20,283		2.4	21,758		2.7
Surety	8,023		2.0	12,141		2.9	18,281		2.2	25,532		3.1
Other (1)	28,781		7.1	29,380		7.1	57,889		7.1	58,886		7.3
Total	$	405,473	100.0	$	417,454	100.0	$	834,950	100.0	$	818,551	100.0
Net premiums written by client location
United States	$	321,656	76.1	$	339,375	80.9	$	624,824	71.3	$	656,419	76.2
Europe	60,974		14.4	48,126		11.5	163,463		18.7	140,522		16.3
Other	40,207		9.5	31,817		7.6	87,474		10.0	63,963		7.5
Total	$	422,837	100.0	$	419,318	100.0	$	875,761	100.0	$	860,904	100.0
Net premiums written by underwriting location
United States	$	305,630	72.3	$	315,466	75.2	$	608,067	69.4	$	636,295	73.9
Europe	90,663		21.4	78,305		18.7	224,402		25.6	183,618		21.3
Other	26,544		6.3	25,547		6.1	43,292		5.0	40,991		4.8
Total	$	422,837	100.0	$	419,318	100.0	$	875,761	100.0	$	860,904	100.0

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

10

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Insurance Segment

(U.S. dollars in thousands)

	Three Months Ended																											Six Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			June 30,			June 30,
	2010			2010			2009			2009			2009			2009			2008			2008			2008			2010			2009
Gross premiums written	$	616,353		$	633,576		$	563,087		$	673,986		$	636,645		$	638,409		$	564,570		$	678,338		$	621,663		$	1,249,929		$	1,275,054
Net premiums written	422,837			452,924			369,704			473,676			419,318			441,586			367,223			466,115			421,501			875,761			860,904
Net premiums earned	$	405,473		$	429,477		$	426,649		$	443,319		$	417,454		$	401,097		$	398,355		$	441,049		$	416,585		$	834,950		$	818,551
Fee income	874			753			883			814			795			870			811			872			880			1,627			1,665
Losses and loss adjustment expenses	(275,294		)	(312,011		)	(278,746		)	(303,304		)	(287,350		)	(270,015		)	(307,136		)	(337,456		)	(262,633		)	(587,305		)	(557,365		)
Acquisition expenses, net	(65,359		)	(67,431		)	(60,926		)	(60,964		)	(58,748		)	(57,623		)	(54,498		)	(62,752		)	(55,400		)	(132,790		)	(116,371		)
Other operating expenses	(71,727		)	(80,720		)	(75,144		)	(72,452		)	(70,836		)	(62,908		)	(71,819		)	(71,861		)	(71,566		)	(152,447		)	(133,744		)
Underwriting income (loss)	$	(6,033	)	$	(29,932	)	$	12,716		$	7,413		$	1,315		$	11,421		$	(34,287	)	$	(30,148	)	$	27,866		$	(35,965	)	$	12,736
Underwriting Ratios
Loss ratio	67.9		%	72.6		%	65.3		%	68.4		%	68.8		%	67.3		%	77.1		%	76.5		%	63.0		%	70.3		%	68.1		%
Acquisition expense ratio (1)	15.9		%	15.5		%	14.1		%	13.6		%	13.9		%	14.1		%	13.5		%	14.0		%	13.1		%	15.7		%	14.0		%
Other operating expense ratio	17.7		%	18.8		%	17.6		%	16.3		%	17.0		%	15.7		%	18.0		%	16.3		%	17.2		%	18.3		%	16.3		%
Combined ratio	101.5		%	106.9		%	97.0		%	98.3		%	99.7		%	97.1		%	108.6		%	106.8		%	93.3		%	104.3		%	98.4		%
Net premiums written
Property, energy, marine and aviation	$	88,194		$	100,665		$	42,811		$	118,536		$	86,385		$	106,029		$	56,263		$	91,461		$	89,674		$	188,859		$	192,414
Programs	73,345			70,498			60,685			66,964			72,279			74,807			64,619			78,045			73,202			143,843			147,086
Professional liability	64,089			58,726			60,109			66,002			57,773			52,008			58,449			70,778			63,583			122,815			109,781
Executive assurance	52,892			61,355			58,561			58,529			52,919			50,079			54,028			53,665			43,740			114,247			102,998
Construction	50,435			36,322			24,503			36,823			56,190			36,571			31,989			43,916			50,105			86,757			92,761
Casualty	26,617			25,463			23,037			26,753			27,217			26,539			27,936			28,456			31,161			52,080			53,756
Travel and accident	15,272			21,806			15,528			15,998			19,557			17,534			12,436			16,949			15,948			37,078			37,091
National accounts casualty	3,877			30,809			16,553			30,726			7,582			24,227			8,856			16,609			9,416			34,686			31,809
Healthcare	9,989			8,524			10,610			10,854			9,667			11,219			11,161			11,411			11,027			18,513			20,886
Surety	7,012			8,091			10,716			12,025			9,254			11,358			12,704			16,599			10,206			15,103			20,612
Other (2)	31,115			30,665			46,591			30,466			20,495			31,215			28,782			38,226			23,439			61,780			51,710
Total	$	422,837		$	452,924		$	369,704		$	473,676		$	419,318		$	441,586		$	367,223		$	466,115		$	421,501		$	875,761		$	860,904
Net premiums earned
Property, energy, marine and aviation	$	80,818		$	95,037		$	91,549		$	94,471		$	78,570		$	73,840		$	76,586		$	88,903		$	83,830		$	175,855		$	152,410
Programs	68,381			66,159			67,672			69,436			71,809			66,669			66,462			71,576			62,085			134,540			138,478
Professional liability	57,903			62,245			59,678			57,540			56,549			58,234			58,195			62,987			66,200			120,148			114,783
Executive assurance	55,143			56,322			56,764			56,094			52,288			47,816			45,192			47,237			44,496			111,465			100,104
Construction	33,536			34,485			36,800			42,495			43,364			40,420			38,603			45,601			39,225			68,021			83,784
Casualty	28,148			28,069			27,198			30,004			31,246			32,698			35,251			37,351			38,292			56,217			63,944
Travel and accident	17,590			16,078			16,580			18,193			18,198			13,156			13,414			17,671			15,994			33,668			31,354
National accounts casualty	16,810			21,773			19,606			19,969			13,079			14,439			10,924			13,503			9,752			38,583			27,518
Healthcare	10,340			9,943			9,886			12,303			10,830			10,928			10,880			12,292			13,137			20,283			21,758
Surety	8,023			10,258			11,448			12,239			12,141			13,391			12,109			13,891			12,057			18,281			25,532
Other (2)	28,781			29,108			29,468			30,575			29,380			29,506			30,739			30,037			31,517			57,889			58,886
Total	$	405,473		$	429,477		$	426,649		$	443,319		$	417,454		$	401,097		$	398,355		$	441,049		$	416,585		$	834,950		$	818,551

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

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

11

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Reinsurance Segment

(U.S. dollars in thousands)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
	Amount		% of Total	Amount		% of Total	Amount		% of Total	Amount		% of Total
Net premiums written
Property catastrophe	$	70,403	35.0	$	91,981	33.5	$	159,205	30.8	$	183,884	28.0
Property excluding property catastrophe (1)	57,880		28.7	90,569		33.0	132,807		25.7	209,657		32.0
Casualty (2)	43,642		21.7	72,490		26.4	116,224		22.5	171,922		26.2
Other specialty	18,920		9.4	3,304		1.2	73,682		14.3	44,016		6.7
Marine and aviation	9,609		4.8	15,391		5.6	30,847		6.0	43,914		6.7
Other	967		0.4	801		0.3	3,486		0.7	2,420		0.4
Total	$	201,421	100.0	$	274,536	100.0	$	516,251	100.0	$	655,813	100.0
Net premiums earned
Property catastrophe	$	52,301	24.0	$	58,763	20.9	$	106,174	23.2	$	117,364	20.2
Property excluding property catastrophe (1)	65,742		30.2	87,304		31.0	144,981		31.7	183,535		31.6
Casualty (2)	59,501		27.4	84,078		29.8	129,937		28.4	170,024		29.3
Other specialty	22,292		10.2	25,912		9.2	40,061		8.7	59,362		10.2
Marine and aviation	16,263		7.5	25,063		8.9	34,335		7.5	49,893		8.6
Other	1,439		0.7	684		0.2	2,490		0.5	1,093		0.1
Total	$	217,538	100.0	$	281,804	100.0	$	457,978	100.0	$	581,271	100.0
Net premiums written
Pro rata	$	84,957	42.2	$	140,939	51.3	$	202,994	39.3	$	322,161	49.1
Excess of loss	116,464		57.8	133,597		48.7	313,257		60.7	333,652		50.9
Total	$	201,421	100.0	$	274,536	100.0	$	516,251	100.0	$	655,813	100.0
Net premiums earned
Pro rata	$	102,374	47.1	$	175,665	62.3	$	233,245	50.9	$	370,183	63.7
Excess of loss	115,164		52.9	106,139		37.7	224,733		49.1	211,088		36.3
Total	$	217,538	100.0	$	281,804	100.0	$	457,978	100.0	$	581,271	100.0
Net premiums written by client location
United States	$	135,374	67.2	$	193,190	70.4	$	306,375	59.3	$	423,158	64.5
Europe	33,378		16.6	39,782		14.5	140,520		27.2	141,283		21.5
Bermuda	23,022		11.4	32,665		11.9	45,697		8.9	70,232		10.7
Other	9,647		4.8	8,899		3.2	23,659		4.6	21,140		3.3
Total	$	201,421	100.0	$	274,536	100.0	$	516,251	100.0	$	655,813	100.0
Net premiums written by underwriting location
Bermuda	$	116,568	57.9	$	184,892	67.3	$	281,502	54.5	$	380,492	58.0
United States	70,295		34.9	79,152		28.8	174,021		33.7	225,345		34.4
Other	14,558		7.2	10,492		3.9	60,728		11.8	49,976		7.6
Total	$	201,421	100.0	$	274,536	100.0	$	516,251	100.0	$	655,813	100.0

(1) Includes facultative business.

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

12

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Reinsurance Segment

(U.S. dollars in thousands)

	Three Months Ended																											Six Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			June 30,			June 30,
	2010			2010			2009			2009			2009			2009			2008			2008			2008			2010			2009
Gross premiums written	$	203,695		$	323,477		$	159,229		$	266,193		$	278,389		$	390,129		$	266,165		$	228,593		$	273,318		$	527,172		$	668,518
Net premiums written	201,421			314,830			149,383			253,632			274,536			381,277			248,351			226,577			264,617			516,251			655,813
Net premiums earned	$	217,538		$	240,440		$	281,889		$	291,066		$	281,804		$	299,467		$	300,159		$	291,982		$	289,090		$	457,978		$	581,271
Fee income	9			41			11			12			22			55			645			72			358			50			77
Losses and loss adjustment expenses	(87,851		)	(116,040		)	(131,614		)	(141,610		)	(111,508		)	(130,527		)	(183,680		)	(211,430		)	(141,992		)	(203,891		)	(242,035		)
Acquisition expenses, net	(42,116		)	(50,193		)	(59,623		)	(61,775		)	(65,066		)	(68,835		)	(68,733		)	(70,661		)	(63,826		)	(92,309		)	(133,901		)
Other operating expenses	(19,303		)	(20,398		)	(24,161		)	(21,271		)	(16,943		)	(18,192		)	(21,761		)	(18,331		)	(20,091		)	(39,701		)	(35,135		)
Underwriting income (loss)	$	68,277		$	53,850		$	66,502		$	66,422		$	88,309		$	81,968		$	26,630		$	(8,368	)	$	63,539		$	122,127		$	170,277
Underwriting Ratios
Loss ratio	40.4		%	48.3		%	46.7		%	48.7		%	39.6		%	43.6		%	61.2		%	72.4		%	49.1		%	44.5		%	41.6		%
Acquisition expense ratio	19.4		%	20.9		%	21.2		%	21.2		%	23.1		%	23.0		%	22.9		%	24.2		%	22.1		%	20.2		%	23.0		%
Other operating expense ratio	8.9		%	8.5		%	8.6		%	7.3		%	6.0		%	6.1		%	7.2		%	6.3		%	6.9		%	8.7		%	6.0		%
Combined ratio	68.7		%	77.7		%	76.5		%	77.2		%	68.7		%	72.7		%	91.3		%	102.9		%	78.1		%	73.4		%	70.6		%
Net premiums written
Property catastrophe	$	70,403		$	88,802		$	3,022		$	50,539		$	91,981		$	91,903		$	27,534		$	44,591		$	52,797		$	159,205		$	183,884
Property excluding property catastrophe (1)	57,880			74,927			49,413			90,845			90,569			119,088			90,909			56,105			85,748			132,807			209,657
Casualty (2)	43,642			72,582			68,693			85,084			72,490			99,432			71,740			82,497			86,974			116,224			171,922
Other specialty	18,920			54,762			10,578			10,595			3,304			40,712			26,066			24,013			20,693			73,682			44,016
Marine and aviation	9,609			21,238			17,576			16,187			15,391			28,523			31,867			18,727			17,975			30,847			43,914
Other	967			2,519			101			382			801			1,619			235			644			430			3,486			2,420
Total	$	201,421		$	314,830		$	149,383		$	253,632		$	274,536		$	381,277		$	248,351		$	226,577		$	264,617		$	516,251		$	655,813
Net premiums earned
Property catastrophe	$	52,301		$	53,873		$	56,937		$	61,772		$	58,763		$	58,601		$	60,975		$	57,015		$	51,496		$	106,174		$	117,364
Property excluding property catastrophe (1)	65,742			79,239			94,716			94,837			87,304			96,231			78,778			68,670			67,445			144,981			183,535
Casualty (2)	59,501			70,436			86,193			88,721			84,078			85,946			95,990			106,146			106,199			129,937			170,024
Other specialty	22,292			17,769			24,085			23,251			25,912			33,450			36,255			36,388			36,058			40,061			59,362
Marine and aviation	16,263			18,072			18,882			21,666			25,063			24,830			26,877			22,395			26,946			34,335			49,893
Other	1,439			1,051			1,076			819			684			409			1,284			1,368			946			2,490			1,093
Total	$	217,538		$	240,440		$	281,889		$	291,066		$	281,804		$	299,467		$	300,159		$	291,982		$	289,090		$	457,978		$	581,271

(1) Includes facultative business.

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

13

Arch Capital Group Ltd. and Subsidiaries

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

(U.S. dollars in thousands)

	June 30,					March 31,					December 31,					September 30,					June 30,
	2010					2010					2009					2009					2009
Investable assets:
Fixed maturities available for sale, at market value	$	9,428,456		81	%	$	9,295,680		80	%	$	9,391,926		82	%	$	9,265,961		80	%	$	8,944,110		83	%
Fixed maturities pledged under securities lending agreements, at market value (1)	195,372			2	%	181,871			2	%	208,826			2	%	609,334			5	%	559,385			5	%
Total fixed maturities	9,623,828			83	%	9,477,551			82	%	9,600,752			84	%	9,875,295			85	%	9,503,495			88	%
Short-term investments available for sale, at market value	554,304			5	%	669,798			6	%	571,490			5	%	706,157			6	%	660,859			6	%
Short-term investments pledged under securities lending agreements, at market value (1)	19,192			0	%	2,350			0	%	3,993			0	%	—			0	%	—			0	%
Cash	341,469			3	%	338,708			3	%	334,571			3	%	385,149			4	%	336,693			3	%
TALF investments, at market value (2)	407,469			3	%	406,997			3	%	250,265			2	%	250,517			2	%	—			—
Other investments
Fixed income mutual funds	67,098			1	%	70,204			1	%	63,146			2	%	55,646			1	%	49,505			0	%
Other securities	273,500			2	%	193,404			2	%	109,027			1	%	98,880			1	%	65,755			1	%
Investment funds accounted for using the equity method	408,402			4	%	405,584			3	%	391,869			3	%	376,381			3	%	370,165			4	%
Securities transactions entered into but not settled at the balance sheet date	(108,059		)	(1	)%	(2,444		)	0	%	50,790			0	%	(198,980		)	(2	)%	(239,736		)	(2	)%
Total investable assets (1)	$	11,587,203		100	%	$	11,562,152		100	%	$	11,375,903		100	%	$	11,549,045		100	%	$	10,746,736		100	%
Fixed income metrics (1):
Average effective duration (in years)	2.90					2.77					2.87					3.09					3.02
Average credit quality	AA+					AA+					AA+					AA+					AA+
Imbedded book yield (before investment expenses)	3.39		%			3.57		%			3.64		%			3.93		%			4.06		%
Credit quality distribution of total fixed maturities (1) (3):
AAA	$	7,278,291		76	%	$	7,010,314		74	%	$	7,072,381		74	%	$	7,124,679		72	%	$	7,163,333		75	%
AA	1,011,324			10	%	1,117,951			12	%	1,281,377			13	%	1,232,298			12	%	1,013,732			10	%
A	543,359			6	%	580,769			6	%	547,104			6	%	786,142			8	%	734,015			8	%
BBB	274,738			3	%	263,195			3	%	231,988			2	%	274,338			3	%	267,107			3	%
BB	109,407			1	%	97,634			1	%	85,952			1	%	75,030			1	%	65,242			1	%
B	202,476			2	%	204,743			2	%	209,417			2	%	231,047			2	%	178,196			2	%
Lower than B	117,419			1	%	118,362			1	%	80,871			1	%	69,921			1	%	29,446			0	%
Not rated	86,814			1	%	84,583			1	%	91,662			1	%	81,840			1	%	52,424			1	%
Total fixed maturities, at market value	$	9,623,828		100	%	$	9,477,551		100	%	$	9,600,752		100	%	$	9,875,295		100	%	$	9,503,495		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 payment of the loan and is carrying the investments and borrowings at market value.
(3)	Ratings as assigned by the major rating agencies.

14

Arch Capital Group Ltd. and Subsidiaries

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

(U.S. dollars in thousands)

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 June 30, 2010:

			Gross		Gross			Net					Estimated
	Estimated		Unrealized		Unrealized			Unrealized			Amortized		Market Value /
	Market Value		Gains		Losses			Gains (Losses)			Cost		Amortized Cost
Corporates	$	1,949,058	$	68,463	$	(23,420	)	$	45,043		$	1,904,015	102.4	%
Non-U.S. government-backed corporates	673,408		18,893		(4,609		)	14,284			659,124		102.2	%
FDIC guaranteed corporates	227,123		6,009		—			6,009			221,114		102.7	%
U.S. government and government agencies	1,663,506		49,252		(65		)	49,187			1,614,319		103.0	%
Agency mortgage-backed securities	1,513,149		31,651		(31		)	31,620			1,481,529		102.1	%
Non-agency mortgage-backed securities	387,142		7,758		(29,292		)	(21,534		)	408,676		94.7	%
Agency commercial mortgage-backed securities	408,846		20,746		(5,156		)	15,590			393,256		104.0	%
Non-agency commercial mortgage-backed securities	648,549		16,074		(2,719		)	13,355			635,194		102.1	%
Municipal bonds	989,917		47,217		(321		)	46,896			943,021		105.0	%
Non-U.S. government securities	668,853		33,016		(25,190		)	7,826			661,027		101.2	%
Asset-backed securities	494,277		19,214		(7,842		)	11,372			482,905		102.4	%
Total	$	9,623,828	$	318,293	$	(98,645	)	$	219,648		$	9,404,180	102.3	%

Corporates (Excluding Guaranteed Amounts)

The following table summarizes the Company’s corporate bonds by sector and by credit quality distribution at June 30, 2010, excluding guaranteed amounts:

	Estimated Market Value
			% of Asset		% of Investable
	Total		Class		Assets
Sector:
Financials	$	991,962	50.9	%	8.6	%
Industrials	660,568		33.9	%	5.7	%
Utilities	80,553		4.1	%	0.7	%
Foreign agencies	28,481		1.5	%	0.2	%
All other (1)	187,494		9.6	%	1.6	%
Total	$	1,949,058	100.0	%	16.8	%
Credit quality distribution (2):
AAA	$	496,529	25.5	%	4.3	%
AA	398,282		20.4	%	3.4	%
A	453,644		23.3	%	3.9	%
BBB	247,628		12.7	%	2.1	%
BB	93,411		4.8	%	0.8	%
B	164,082		8.4	%	1.4	%
Lower than B	10,578		0.5	%	0.1	%
Not rated	84,904		4.4	%	0.7	%
Total	$	1,949,058	100.0	%	16.8	%

The following table summarizes the Company’s top ten exposures to fixed income corporate issuers by market value at June 30, 2010, excluding guaranteed amounts:

	Estimated		% of Asset		% of Investable		Credit
Issuer	Market Value		Class		Assets		Rating (2)
JPMorgan Chase & Co	$	84,347	4.3	%	0.7	%	AA
General Electric Co	59,004		3.0	%	0.5	%	AA+
Banco Santander SA	58,603		3.0	%	0.5	%	AA+
Citigroup Inc	50,421		2.6	%	0.4	%	AA
Bank of America Corp	43,490		2.2	%	0.4	%	A+
Sovrisc BV	41,807		2.1	%	0.4	%	AAA
Royal Dutch Shell PLC	41,487		2.1	%	0.4	%	AA
Morgan Stanley	35,886		1.8	%	0.3	%	A+
The Goldman Sachs Group Inc	35,171		1.8	%	0.3	%	AA+
Wells Fargo & Company	34,348		1.8	%	0.3	%	AA-
Total	$	484,564	24.9	%	4.2	%

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

(2) Ratings as assigned by the major rating agencies.

15

Arch Capital Group Ltd. and Subsidiaries

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

(U.S. dollars in thousands)

The following table provides information on the Company’s mortgage-backed securities (MBS) and commercial mortgage-backed securities (CMBS) at June 30, 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	$	3,083	AAA	$	2,992	97.0	%	0.0	%
	2004	21,053		A-	18,786		89.2	%	0.2	%
	2005	67,496		BB+	57,645		85.4	%	0.5	%
	2006	54,028		B-	47,973		88.8	%	0.4	%
	2007	65,656		CCC-	57,770		88.0	%	0.5	%
	2008	11,140		CC+	9,153		82.2	%	0.1	%
	2009 (6)	140,935		AAA	147,601		104.7	%	1.3	%
	2010 (6)	45,285		AAA	45,222		99.9	%	0.4	%
Total non-agency MBS		$	408,676	A-	$	387,142	94.7	%	3.3	%
Non-agency CMBS:	1998	$	3,665	AAA	$	3,826	104.4	%	0.0	%
	1999	147		AAA	147		100.0	%	0.0	%
	2000	2,014		AAA	1,990		98.8	%	0.0	%
	2001	181,140		AAA	182,410		100.7	%	1.6	%
	2002	44,232		AAA	44,592		100.8	%	0.4	%
	2003	63,325		AAA	66,977		105.8	%	0.6	%
	2004	183,997		AAA	185,842		101.0	%	1.6	%
	2005	50,751		AAA	50,470		99.4	%	0.4	%
	2006	20,479		AAA	20,595		100.6	%	0.2	%
	2007	50,221		AAA	55,738		111.0	%	0.5	%
	2009	5,093		AAA	5,242		102.9	%	0.0	%
	2010	30,130		AAA	30,720		102.0	%	0.3	%
Total non-agency CMBS		$	635,194	AAA	$	648,549	102.1	%	5.6	%

	Non-Agency MBS				Non-Agency
Additional Statistics	Re-REMICs		All Other		CMBS (1)
Wtd. average loan age (months)	42		49		80
Wtd. average life (months) (2)	26		60		27
Wtd. average loan-to-value % (3)	72.1	%	68.3	%	63.1	%
Total delinquencies (4)	21.4	%	18.4	%	5.1	%
Current credit support % (5)	42.9	%	12.2	%	26.1	%

(1)	Loans defeased with government/agency obligations represented approximately 20% of the collateral underlying the Company’s CMBS holdings.
(2)	The weighted average life for MBS is based on the interest rates in effect at June 30, 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% to 87%, while the range of loan-to-values on CMBS is 57% to 113%.
(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) June 30, 2010:

			Average	Estimated Market Value
	Amortized		Credit			% of Amortized		% of Investable
	Cost		Quality	Total		Cost		Assets
Sector:
Credit cards (1)	$	221,788	AAA	$	229,989	103.7	%	2.0	%
Autos (2)	169,815		AAA	173,483		102.2	%	1.5	%
Rate reduction bonds (3)	34,150		AAA	36,523		106.9	%	0.3	%
Student loans (4)	23,714		AAA	24,788		104.5	%	0.2	%
Other	15,978		AA	14,968		93.7	%	0.1	%
	465,445		AAA	479,751		103.1	%	4.1	%
Home equity (5)	$	6,029	AAA	$	5,296	87.8	%	0.0	%
	$	256	A	256		100.0	%	0.0	%
	$	298	BBB	295		99.0	%	0.0	%
	$	8,872	BB to B	6,413		72.3	%	0.1	%
	1,767		CCC to C	2,186		123.7	%	0.0	%
	238		D	80		33.6	%	0.0	%
	17,460		BBB-	14,526		83.2	%	0.1	%
Total ABS	$	482,905	AAA	$	494,277	102.4	%	4.3	%

The effective duration of the total ABS was 1.26 years at June 30, 2010.

(1)	The average excess spread % on credit cards is 31.3%.
(2)	The weighted average credit support % on autos is 38.2%.
(3)	The weighted average credit support % on rate reduction bonds is 19.8%.
(4)	The weighted average credit support % on student loans is 7.0%.
(5)	The weighted average credit support % on home equity is 23.8%.
	The Company’s investment portfolio included $48 million par in sub-prime securities at June 30, 2010, with an estimated market value of $17.8 million and an average credit quality of “Ba1/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 $14.9 million estimated market value of sub-prime securities with an average credit quality of “B-” from Standard & Poors and “Caa1” from Moody’s.

16

Arch Capital Group Ltd. and Subsidiaries

Investment Information — Bank Loan Investments

(U.S. dollars in thousands)

The Company’s investments in bank loan funds are included in the following categories at June 30, 2010:

	Carrying		% of Asset		% of Investable
	Value		Class		Assets
Investment funds accounted for using the equity method	$	268,828	65.6	%	2.3	%
Corporate bonds, at market value	100,408		24.5	%	0.9	%
Other investments, at market value	40,479		9.9	%	0.3	%
Total	$	409,715	100.0	%	3.5	%

The following table summarizes the Company’s bank loan funds by currency (translated into U.S. Dollars) at June 30, 2010:

	Carrying		% of Asset		% of Investable
	Value		Class		Assets
U.S.-denominated	$	289,858	70.7	%	2.5	%
Euro-denominated	119,857		29.3	%	1.0	%
Total	$	409,715	100.0	%	3.5	%

The following table summarizes the Company’s bank loan funds by major sector at  June 30, 2010:

	Carrying		% of Asset		% of Investable
	Value		Class		Assets
Sector:
Media	$	79,144	19.3	%	0.7	%
Industrials	53,756		13.1	%	0.5	%
Consumer	101,414		24.8	%	0.9	%
Basic materials	34,437		8.4	%	0.3	%
Utilities	32,540		7.9	%	0.3	%
All other	108,424		26.5	%	0.9	%
Total	$	409,715	100.0	%	3.5	%
Weighted average rating factor (Moody’s)	B3

17

Arch Capital Group Ltd. and Subsidiaries

Comments on Regulation G

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

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

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

In the 2008 fourth quarter, the Company sustained a net loss. Accordingly, based on GAAP, diluted net loss per share and diluted weighted average shares outstanding for the 2008 fourth quarter do not include the effect of dilutive common share equivalents since the inclusion of such common share equivalents is anti-dilutive to per share results.  The 2008 fourth quarter pro forma diluted net loss per share included in this supplement reflects the effect of such dilutive common share equivalents in order to make comparisons to other periods more meaningful. This presentation is a “non-GAAP financial measure” as defined in Regulation G. The reconciliation of such measure to actual diluted net loss per share (the most directly comparable GAAP financial measure) in accordance with Regulation G is included on page 19 of this supplement.

18

Arch Capital Group Ltd. and Subsidiaries

Operating Income Reconciliation

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

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

	Three Months Ended																											Six Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			June 30,			June 30,
	2010			2010			2009			2009			2009			2009			2008 (1)			2008			2008			2010			2009
After-tax operating income available to common shareholders	$	132,182		$	98,731		$	159,431		$	160,332		$	163,041		$	169,001		$	85,934		$	64,094		$	185,375		$	230,913		$	332,042
Net realized gains (losses), net of tax	61,119			45,503			88,592			69,190			(11,243		)	(9,111		)	(30,836		)	(21,904		)	(2,174		)	106,622			(20,354		)
Net impairment losses recognized in earnings, net of tax	(4,410		)	(1,606		)	(4,493		)	(4,643		)	(20,786		)	(36,134		)	(75,169		)	(82,514		)	(10,694		)	(6,016		)	(56,920		)
Equity in net income (loss) of investment funds accounted for using the equity method, net of tax	(348		)	29,050			32,391			69,119			75,890			(9,581		)	(174,147		)	(1,731		)	19,583			28,702			66,309
Net foreign exchange gains (losses), net of tax	48,447			38,855			8,775			(19,591		)	(54,773		)	25,694			51,246			68,445			192			87,302			(29,079		)
Net income (loss) available to common shareholders	$	236,990		$	210,533		$	284,696		$	274,407		$	152,129		$	139,869		$	(142,972	)	$	26,390		$	192,282		$	447,523		$	291,998
Diluted per common share results:
After-tax operating income available to common shareholders	$	2.48		$	1.78		$	2.66		$	2.56		$	2.60		$	2.70		$	1.43		$	1.02		$	2.82		$	4.24		$	5.31
Net realized gains (losses), net of tax	1.15			0.82			1.48			1.11			(0.18		)	(0.14		)	(0.51		)	(0.35		)	(0.03		)	1.96			(0.33		)
Net impairment losses recognized in earnings, net of tax	(0.08		)	(0.03		)	(0.08		)	(0.08		)	(0.33		)	(0.58		)	(1.25		)	(1.31		)	(0.17		)	(0.11		)	(0.91		)
Equity in net income (loss) of investment funds accounted for using the equity method, net of tax	(0.01		)	0.52			0.54			1.11			1.21			(0.15		)	(2.90		)	(0.03		)	0.30			0.53			1.06
Net foreign exchange gains (losses), net of tax	0.91			0.70			0.15			(0.31		)	(0.87		)	0.41			0.85			1.09			0.00			1.61			(0.46		)
Net income (loss) available to common shareholders	$	4.45		$	3.79		$	4.75		$	4.39		$	2.43		$	2.24		$	(2.38	)	$	0.42		$	2.92		$	8.23		$	4.67
Weighted average common shares and common share equivalents outstanding — diluted	53,265,303			55,513,827			59,910,667			62,533,816			62,626,317			62,559,969			60,048,258			62,830,910			65,748,119			54,386,690			62,589,856

	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.

19

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
	June 30,		March 31,		December 31,		September 30,		June 30,		March 31,		December 31,		September 30,		June 30,		March 31,		June 30,
	2010		2010		2009		2009		2009		2009		2008		2008		2008		2008		2010
Effect of share repurchases:
Aggregate cost of shares repurchased	$	269,054	$	181,272	$	358,655	$	98,194	$	0	$	1,552	$	0	$	123,377	$	199,910	$	189,843	$	1,958,923
Shares repurchased	3,644,227		2,529,913		5,148,271		1,533,247		—		33,305		—		1,865,482		2,871,859		2,749,909		28,145,252
Average price per share repurchased	$	73.83	$	71.65	$	69.67	$	64.04			$	46.60			$	66.14	$	69.61	$	69.04	$	69.60
Average book value per common share (1)	$	79.49	$	74.96	$	71.25	$	65.12	$	57.68	$	52.98	$	52.20	$	55.27	$	57.20	$	56.02
Average repurchase price-to-book multiple	0.93x		0.96x		0.98x		0.98x				0.88x				1.20x		1.22x		1.23x
Remaining share repurchase authorization (2)	$	541,077

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

(2)  Repurchases under the share repurchase authorization may be effected from time to time in open market or privately negotiated transactions through December 31, 2011.

20

Arch Capital Group Ltd. and Subsidiaries

Annualized Operating Return on Average Common Equity

(U.S. dollars in thousands)

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

	Three Months Ended																											Six Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			June 30,			June 30,
	2010			2010			2009			2009			2009			2009			2008			2008			2008			2010			2009
After-tax operating income available to common shareholders	$	132,182		$	98,731		$	159,431		$	160,332		$	163,041		$	169,001		$	85,934		$	64,094		$	185,375		$	230,913		$	332,042
Annualized after-tax operating income available to common shareholders (a)	$	528,728		$	394,924		$	637,724		$	641,328		$	652,164		$	676,004		$	343,736		$	256,376		$	741,500		$	461,826		$	664,084
Beginning 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		$	3,998,349		$	3,107,965
Ending common shareholders’ equity	4,073,003			4,053,757			3,998,349			4,135,822			3,704,968			3,305,396			3,107,965			3,191,710			3,561,233			4,073,003			3,704,968
Average common shareholders’ equity (b)	$	4,063,380		$	4,026,053		$	4,067,086		$	3,920,395		$	3,505,182		$	3,206,681		$	3,149,838		$	3,376,472		$	3,620,389		$	4,035,676		$	3,406,467
Annualized operating return on average common equity (a)/(b)	13.0		%	9.8		%	15.7		%	16.4		%	18.6		%	21.1		%	10.9		%	7.6		%	20.5		%	11.4		%	19.5		%

21

Arch Capital Group Ltd. and Subsidiaries

Capital Structure

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

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

	June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,
	2010			2010			2009			2009			2009			2009			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)	125,000			100,000			100,000			100,000			100,000			100,000			100,000			100,000			100,000
Total debt	$	425,000		$	400,000		$	400,000		$	400,000		$	400,000		$	400,000		$	400,000		$	400,000		$	400,000
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)	4,073,003			4,053,757			3,998,349			4,135,822			3,704,968			3,305,396			3,107,965			3,191,710			3,561,233
Total shareholders’ equity	$	4,398,003		$	4,378,757		$	4,323,349		$	4,460,822		$	4,029,968		$	3,630,396		$	3,432,965		$	3,516,710		$	3,886,233
Total capital	$	4,823,003		$	4,778,757		$	4,723,349		$	4,860,822		$	4,429,968		$	4,030,396		$	3,832,965		$	3,916,710		$	4,286,233
TALF non-recourse borrowings, at market value, due between 2012 to 2015 (various) (3)	336,213			346,746			217,565			219,843			—			—			—			—			—
Total capital and TALF non-recourse borrowings	$	5,159,216		$	5,125,503		$	4,940,914		$	5,080,665		$	4,429,968		$	4,030,396		$	3,832,965		$	3,916,710		$	4,286,233
Common shares outstanding, net of treasury shares (4) (b)	49,630,570			52,709,934			54,761,678			59,524,309			60,980,806			60,532,222			60,511,974			60,173,489			61,943,100
Book value per common share (a)/(b)	$	82.07		$	76.91		$	73.01		$	69.48		$	60.76		$	54.61		$	51.36		$	53.04		$	57.49
Leverage ratios:
Senior notes/total capital	6.2		%	6.3		%	6.4		%	6.2		%	6.8		%	7.4		%	7.8		%	7.7		%	7.0		%
Revolving credit agreement borrowings/total capital	2.6		%	2.1		%	2.1		%	2.1		%	2.3		%	2.5		%	2.6		%	2.6		%	2.3		%
Debt/total capital	8.8		%	8.4		%	8.5		%	8.2		%	9.0		%	9.9		%	10.4		%	10.2		%	9.3		%
Preferred/total capital	6.7		%	6.8		%	6.9		%	6.7		%	7.3		%	8.1		%	8.5		%	8.3		%	7.6		%
Debt and preferred/total capital	15.6		%	15.2		%	15.3		%	14.9		%	16.4		%	18.0		%	18.9		%	18.5		%	16.9		%

(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 14.8% and the ratio of debt and preferred to total capital would have been 21.1% at June 30, 2010.
(4)	Excludes the effects of stock options and restricted stock units outstanding.

22