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

February 14, 2011

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	(Commission File Number)	(I.R.S. Employer
jurisdiction of		Identification No.)
incorporation or
organization)

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 February 14, 2011, Arch Capital Group Ltd. issued a press release reporting its earnings and the availability of its fourth quarter financial supplement for the three month period and year ended December 31, 2010.  The press release and financial supplement are attached to this Current Report on Form 8-K as Exhibit 99.1 and Exhibit 99.2, respectively, and are incorporated herein by reference.

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

ITEM 9.01Exhibits.

EXHIBIT NO.	DESCRIPTION
99.1	Press Release dated February 14, 2011 announcing the earnings of Arch Capital Group Ltd. for the three month period and year ended December 31, 2010
99.2	Fourth 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: February 14, 2011	By:	/s/ John C.R. Hele
		Name: John C.R. Hele
		Title: Executive Vice President and Chief Financial Officer

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EXHIBIT INDEX

EXHIBIT NO.	DESCRIPTION
99.1	Press Release dated February 14, 2011 announcing the earnings of Arch Capital Group Ltd. for the three month period and year ended December 31, 2010
99.2	Fourth Quarter 2010 Financial Supplement

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EX-99.1

Exhibit 99.1

ARCH CAPITAL GROUP LTD.

Earnings Release Supplement

As of December 31, 2010

INDEX TO SUPPLEMENT

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

Wessex House, 4th Floor 45 Reid Street Hamilton HM 12 Bermuda 441-278-9250 441-278-9255 fax

PRESS RELEASE
NASDAQ Symbol ACGL	CONTACT:
For Immediate Release	John C.R. Hele
	Executive Vice President and
	Chief Financial Officer

ARCH CAPITAL GROUP LTD. REPORTS 2010 FOURTH QUARTER RESULTS

HAMILTON, BERMUDA, February 14, 2011 — Arch Capital Group Ltd. (NASDAQ: ACGL) reports that net income available to common shareholders for the 2010 fourth quarter was $227.7 million, or $4.54 per share, compared to $284.7 million, or $4.75 per share, for the 2009 fourth quarter. The Company also reported after-tax operating income available to common shareholders of $129.5 million, or $2.58 per share, for the 2010 fourth quarter, compared to $159.4 million, or $2.66 per share, for the 2009 fourth quarter. All earnings per share amounts discussed in this release are on a diluted basis.

The Company’s book value per common share was $89.98 at December 31, 2010, a 0.8% increase from $89.24 per share at September 30, 2010 and a 23.2% increase from $73.01 per share at December 31, 2009. The Company’s after-tax operating income available to common shareholders represented a 12.1% annualized return on average common equity for the 2010 fourth quarter, compared to 15.7% for the 2009 fourth 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 Re gulation G.

In the 2010 fourth quarter, the Company recorded net losses for the Australian floods that occurred in December 2010 of approximately $22.5 million, or $0.45 per share, net of reinsurance and reinstatement premiums. The Company’s 2011 first quarter results will be impacted by subsequent Australian flooding and Cyclone Yasi that occurred in Australia in 2011. Although it is early in the estimation process, the Company’s preliminary estimate of losses for the 2011 first quarter events is in the range of $30 million to $60 million, net of reinsurance and reinstatement premiums. The Company’s estimates for the 2010 and 2011 Australian floods are based, in part, on preliminary estimates of industry insured losses ranging from $3.0 billion to $6.0 billion, and the Company’s estimates for Cyclone Yasi are based, in part, on preliminary estimates of industry insured losses ranging from $0.5 bil lion to $1.5 billion.

The Company’s preliminary estimates for the 2010 and 2011 Australian floods and Cyclone Yasi are based on currently available information derived from modeling techniques, industry assessments of exposure, preliminary claims information obtained from the Company’s clients and brokers to date and a review of in-force contracts. The Company’s actual losses from these events may vary materially from the estimates due to the inherent uncertainties in making such determinations resulting from several factors, including the preliminary nature of available information, the potential inaccuracies and inadequacies in the data provided by clients and brokers, the modeling techniques and the application of such techniques, the contingent nature of business interruption exposures, the effects of any resultant demand surge on claims activity and attendant coverage issues. In addition, actual losses may increa se if the Company’s reinsurers fail to meet their obligations

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to the Company or the reinsurance protections purchased by the Company are exhausted or are otherwise unavailable.

The following table summarizes the Company’s underwriting results:

	Three Months Ended						Year Ended
	December 31,						December 31,
(U.S. dollars in thousands)	2010			2009			2010			2009
Gross premiums written	$	664,212		$	718,712		$	3,266,787		$	3,592,931
Net premiums written	482,911			519,087			2,511,040			2,763,112
Net premiums earned	632,146			708,538			2,552,483			2,842,745
Underwriting income	48,356			79,218			195,004			336,066
Combined ratio	92.7		%	88.8		%	92.5		%	88.1		%

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

	Three Months Ended						Year Ended
	December 31,						December 31,
(U.S. dollars in thousands, except share data)	2010			2009			2010			2009
After-tax operating income available to common shareholders	$	129,489		$	159,431		$	491,074		$	651,805
Net realized gains, net of tax	71,821			88,592			247,054			137,428
Net impairment losses recognized in earnings, net of tax	(3,230		)	(4,493		)	(11,321		)	(66,056		)
Equity in net income of investment funds accounted for using the equity method, net of tax	22,990			32,391			61,400			167,819
Net foreign exchange gains (losses), net of tax	6,581			8,775			28,537			(39,895		)
Net income available to common shareholders	$	227,651		$	284,696		$	816,744		$	851,101
Diluted per common share results:
After-tax operating income available to common shareholders	$	2.58		$	2.66		$	9.35		$	10.53
Net realized gains, net of tax	1.43			1.48			4.70			2.22
Net impairment losses recognized in earnings, net of tax	(0.06		)	(0.08		)	(0.21		)	(1.07		)
Equity in net income of investment funds accounted for using the equity method, net of tax	0.46			0.54			1.17			2.71
Net foreign exchange gains (losses), net of tax	0.13			0.15			0.54			(0.65		)
Net income available to common shareholders	$	4.54		$	4.75		$	15.55		$	13.74
Weighted average common shares and common share equivalents outstanding — diluted	50,102,143			59,910,667			52,521,719			61,927,132

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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 fourth quarter, the combined ratio of the Company’s insurance and reinsurance subsidiaries consisted of a loss ratio of 58.1% and an underwriting expense ratio of 34.6%, compared to a loss ratio of 57.9% and an underwriting expense ratio of 30.9% for the 2009 fourth quarter. For the year ended December 31, 2010, the combined ratio of the Company’s insurance and reinsurance subsidiaries consisted of a loss ratio of 59.5% and an underwriting expense ratio of 33.0%, compared to a loss ratio of 58.2% and an underwriting expense ratio of 29.9% for the year ended December 31, 2009.

In establishing the reserves for losses and loss adjustment expenses, the Company has made various assumptions relating to the pricing of its reinsurance contracts and insurance policies and also has considered available historical industry experience and current industry conditions. Any estimates and assumptions made as part of the reserving process could prove to be inaccurate due to several factors, including the fact that relatively limited historical information has been reported to the Company through December 31, 2010. As actual loss information is reported to the Company and it develops its own loss experience, the Company will give more emphasis to other actuarial techniques. For a discussion of underwriting activities and a review of the Company’s results by operating segment, see “Segment Information” in the Supplemental Financial Information section of this release.

The Company’s investment portfolio continues to be comprised primarily of high quality fixed income securities with an average credit quality of “AA+.” The average effective duration of the investment portfolio was 2.83 years at December 31, 2010, compared to 3.11 years at September 30, 2010 and 2.87 years at December 31, 2009. During 2010, the Company has continued to diversify its investment portfolio by increasing its holdings in portfolios which include allocations to global natural resource markets and other sectors and investment funds which invest in fixed income securities, commodities, property and emerging markets as part of total return objectives. Such amounts, which are included in ‘Other investments’ on the Company’s balance sheet, were approximately 2.9% of total investable assets at December 31, 2010. In addition, the Company increased its alloca tion in equity securities and investment funds that invest in global equities during 2010. Equity securities were approximately 3.1% of total investable assets at December 31, 2010.

Including the effects of foreign exchange, total return on the Company’s investment portfolio was approximately (0.07)% for the 2010 fourth quarter, compared to 1.15% for the 2009 fourth quarter, and 7.00% for the year ended December 31, 2010, compared to 11.28% for the year ended December 31, 2009. Excluding the effects of foreign exchange, total return was (0.04)% for the 2010 fourth quarter, compared to 1.16% for the 2009 fourth quarter, and 7.26% for the year ended December 31, 2010, compared to 10.56% for the year ended December 31, 2009.

Net investment income for the 2010 fourth quarter was $90.6 million, or $1.81 per share, compared to $93.6 million, or $1.56 per share, for the 2009 fourth quarter. The comparability of net investment income between the 2010 and 2009 periods was influenced by the Company’s share repurchase program described below. The pre-tax investment income yield was 3.24% for the 2010 fourth quarter, compared to 3.44% for the 2009 fourth quarter, and 3.34% for the year ended December 31, 2010, compared to 3.74% for the year ended December 31, 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 fourth quarter was $144.5 million, compared to $184.0 million for the 2009 fourth quarter, and $802.1 million for the year ended December 31, 2010, compared to $992.6 million for th e year ended December 31, 2009. The decline in operating cash flows in the 2010 periods primarily reflect a lower level of premium volume and changes in the mix of business.

For the year ended December 31, 2010, the Company’s effective tax rates on income before income taxes and pre-tax operating income were 0.9% and 0.5%, respectively, compared to 2.3% and 2.0%, respectively, for the year ended December 31, 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.

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The Company’s quarterly tax provision is adjusted to reflect changes in its expected annual effective tax rate, if any. The Company’s estimated effective tax rate on pre-tax operating income was 2.0% at September 30, 2010. The impact of applying the 0.5% annual effective tax rate on pre-tax operating income for the nine months ended September 30, 2010 increased the Company’s after-tax results for the 2010 fourth quarter by $5.2 million, or $0.10 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, 2011 will be in the range of 1% to 3%. In addition, the Company’s Bermuda-based reinsurer incurs federal excise taxes for premiums assumed on U.S. risks. The Company incurred $11.5 million of federal excise taxes for the year ended December 31, 2010, compared to $1 2.8 million for the year ended December 31, 2009. Such amounts are reflected as acquisition expenses in the Company’s consolidated statements of income.

Net foreign exchange gains for the 2010 fourth quarter were $6.0 million (net unrealized gains of $8.5 million and net realized losses of $2.5 million), compared to net foreign exchange gains for the 2009 fourth quarter of $9.1 million (net unrealized gains of $7.6 million and net realized gains of $1.5 million). Net foreign exchange gains for the year ended December 31, 2010 were $28.1 million (net unrealized gains of $29.5 million and net realized losses of $1.4 million), compared to net foreign exchange losses for the year ended December 31, 2009 of $39.2 million (net unrealized losses of $37.6 million and net realized losses of $1.6 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 cur rency fluctuations and increase the volatility of the Company’s shareholders’ equity.

During the 2010 fourth quarter, the Company repurchased 2.9 million common shares for an aggregate purchase price of $258.2 million under its share repurchase program. Since the inception of the share repurchase program through December 31, 2010, ACGL has repurchased 31.7 million common shares for an aggregate purchase price of $2.27 billion. From January 1 to February 11, 2011, the Company repurchased an additional 1.6 million common shares for an aggregate purchase price of $139.6 million. At February 11, 2011, $89.9 million of repurchases were available under the share repurchase program.

At December 31, 2010, the Company’s capital of $4.91 billion consisted of $300.0 million of senior notes, representing 6.1% of the total, $100.0 million of revolving credit agreement borrowings due in August 2011, representing 2.0% of the total, $325.0 million of preferred shares, representing 6.6% of the total, and common shareholders’ equity of $4.19 billion, representing the balance. At December 31, 2009, the Company’s capital of $4.72 billion consisted of $300.0 million of senior notes, representing 6.4% of the total, $100.0 million of revolving credit agreement borrowings due in August 2011, representing 2.1% of the total, $325.0 million of preferred shares, representing 6.9% of the total, and common shareholders’ equity of $4.0 billion, representing the balance.

The Company will hold a conference call for investors and analysts at 11:00 a.m. Eastern Time on Tuesday, February 15, 2011. 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 February 15 at 2:00 p.m. Eastern Time until February 22, 2011 at midnight Eastern Time. To access the replay, domestic callers should dial 888-286-8010 (passcode 91398818), and international callers should dial 617-801-6888 (passcode 91398818).

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

Arch Capital Group Ltd., a Bermuda-based company with approximately $4.91 billion in capital at December 31, 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, prevailing credit terms and the depth and duration of the recession) and conditions specific to the reinsurance and insurance markets (including the length and magnitude of the current “soft” market) 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

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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 December 31, 2010;

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

·severity and/or frequency of losses;

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

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

·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 comp arable 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 proces s 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 acco unting 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 Compan y 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

	December 31,
(U.S. dollars in thousands, except share data)	2010			2009
Calculation of book value per common share:
Total shareholders’ equity	$	4,513,003		$	4,323,349
Less preferred shareholders’ equity	(325,000		)	(325,000		)
Common shareholders’ equity	$	4,188,003		$	3,998,349
Common shares outstanding, net of treasury shares (1)	46,544,075			54,761,678
Book value per common share	$	89.98		$	73.01

(1)Excludes the effects of  4,083,856 and 5,016,104 stock options and  173,178 and 261,012 restricted stock units outstanding at December 31, 2010 and 2009, respectively.

Share Repurchase Activity

	Three Months Ended				Year Ended				Cumulative
(U.S. dollars in thousands,	December 31,				December 31,				December 31,
except share data)	2010		2009		2010		2009		2010
Effect of share repurchases:
Aggregate cost of shares repurchased	$	258,151	$	358,655	$	761,874	$	458,401	$	2,270,471
Shares repurchased	2,893,017		5,148,271		9,748,222		6,714,823		31,719,334
Average price per share repurchased	$	89.23	$	69.67	$	78.16	$	68.27	$	71.58
Estimated net accretive impact on diluted earnings per share (1)	$	0.75	$	0.34	$	2.41	$	1.41
Estimated net accretive impact on ending book value per common share (2)									$	7.46

(1)The estimated impact on diluted earnings per share was calculated comparing reported results versus (i) after-tax operating income 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 December 31, 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						Year Ended
	December 31,						December 31,
(U.S. dollars in thousands, except share data)	2010			2009			2010			2009
Components of net investment income:
Fixed maturities and short-term investments	$	93,010		$	99,272		$	380,019		$	406,758
Securities lending transactions	31			157			197			2,346
Equity securities	953			51			1,363			51
Other	1,555			402			3,685			2,016
Gross investment income	95,549			99,882			385,264			411,171
Investment expense	(4,948		)	(6,331		)	(20,386		)	(21,040		)
Net investment income	$	90,601		$	93,551		$	364,878		$	390,131
Per share	$	1.81		$	1.56		$	6.95		$	6.30
Investment income yield, at amortized cost (1):
Pre-tax	3.24		%	3.44		%	3.34		%	3.74		%
After-tax	3.13		%	3.33		%	3.23		%	3.62		%
Cash flow from operations	$	144,513		$	183,983		$	802,074		$	992,647

(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 certain equities.

	December 31,
(U.S. dollars in thousands)	2010			2009
Investable assets:
Fixed maturities available for sale, at market value	$	9,082,828		$	9,391,926
Fixed maturities pledged under securities lending agreements, at market value (1)	75,575			208,826
Total fixed maturities	9,158,403			9,600,752
Short-term investments available for sale, at market value	915,841			571,490
Short-term investments pledged under securities lending agreements, at market value (1)	—			3,993
Cash	362,740			334,571
TALF investments, at market value (2)	402,449			250,265
Equity securities available for sale, at market value	363,255			36,623
Other investments
Fixed income investment funds	266,267			63,146
Other	83,005			72,403
Investment funds accounted for using the equity method (3)	434,600			391,869
Securities transactions entered into but not settled at the balance sheet date	(144,047		)	50,790
Total investable assets (1)	$	11,842,513		$	11,375,902
Investment portfolio statistics (1):
Average effective duration (in years)	2.83			2.87
Average credit quality	AA+			AA+
Imbedded book yield (before investment expenses)	3.52		%	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						Year Ended
	December 31,						December 31,
(U.S. dollars in thousands)	2010			2009			2010			2009
Components of losses and loss adjustment expenses incurred
Paid losses and loss adjustment expenses	$	369,054		$	359,749		$	1,307,285		$	1,439,090
Change in unpaid losses and loss adjustment expenses	(1,728		)	50,611			210,430			215,584
Total losses and loss adjustment expenses	$	367,326		$	410,360		$	1,517,715		$	1,654,674
Estimated net (favorable) adverse development in prior year loss reserves, net of related adjustments
Net impact on underwriting results:
Insurance	$	(7,081	)	$	987		$	(12,456	)	$	(44,127	)
Reinsurance	(31,396		)	(17,408		)	(125,638		)	(138,404		)
Total	$	(38,477	)	$	(16,421	)	$	(138,094	)	$	(182,531	)
Impact on losses and loss adjustment expenses:
Insurance	$	(5,794	)	$	(2,475	)	$	(19,101	)	$	(47,060	)
Reinsurance	(32,711		)	(17,704		)	(127,595		)	(142,141		)
Total	$	(38,505	)	$	(20,179	)	$	(146,696	)	$	(189,201	)
Impact on acquisition expenses:
Insurance	$	(1,287	)	$	3,462		$	6,645		$	2,933
Reinsurance	1,315			296			1,957			3,737
Total	$	28		$	3,758		$	8,602		$	6,670
Impact on combined ratio:
Insurance	(1.8		)%	0.2		%	(0.8		)%	(2.6		)%
Reinsurance	(13.8		)%	(6.2		)%	(13.9		)%	(12.0		)%
Total	(6.1		)%	(2.3		)%	(5.4		)%	(6.4		)%
Impact on loss ratio:
Insurance	(1.4		)%	(0.6		)%	(1.2		)%	(2.8		)%
Reinsurance	(14.4		)%	(6.3		)%	(14.2		)%	(12.3		)%
Total	(6.1		)%	(2.8		)%	(5.7		)%	(6.7		)%
Impact on acquisition expense ratio:
Insurance	(0.4		)%	0.8		%	0.4		%	0.2		%
Reinsurance	0.6		%	0.1		%	0.3		%	0.3		%
Total	0.0		%	0.5		%	0.3		%	0.3		%
Estimated net losses incurred from current accident year catastrophic events (1)
Insurance	$	1,147		$	—		$	30,958		$	—
Reinsurance	29,830			3,093			89,271			22,861
Total	$	30,977		$	3,093		$	120,229		$	22,861
Impact on loss ratio:
Insurance	0.3		%	0.0		%	1.9		%	0.0		%
Reinsurance	13.1		%	1.1		%	9.9		%	2.0		%
Total	4.9		%	0.4		%	4.7		%	0.8		%

(1)Equals estimated losses from catastrophic events occurring in the current accident year, net of reinsurance. 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 — Discussion of 2010 Fourth Quarter Performance

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

Insurance Segment

	Three Months Ended
	December 31,
(U.S. dollars in thousands)	2010			2009
Gross premiums written	$	527,783		$	563,087
Net premiums written	351,841			369,704
Net premiums earned	404,275			426,649
Underwriting income	(5,793		)	12,716
Loss ratio	65.5		%	65.3		%
Acquisition expense ratio	15.4		%	14.1		%
Other operating expense ratio	20.5		%	17.6		%
Combined ratio	101.4		%	97.0		%
Catastrophic activity and prior year development:
Current accident year catastrophic events	0.3		%	0.0		%
Net favorable development in prior year loss reserves, net of related adjustments	(1.8		)%	0.2		%
Combined ratio excluding such items	102.9		%	96.8		%

Gross premiums written by the insurance segment in the 2010 fourth quarter were 6.3% lower than in the 2009 fourth quarter as reductions in commercial aviation, professional liability and surety lines of business. The reduction in commercial aviation business primarily resulted from a strategic decision to exit the business while the lower level of property, professional liability and surety business was due in part to market conditions. Net premiums written were 4.8% lower than in the 2009 fourth quarter and also reflect 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 fourth quarter were 5.2% lower than in the 2009 fourth quarter, and reflect changes in net premiums written over the previous five quarters.

The 2010 fourth quarter loss ratio reflected 0.3 points for current year catastrophic event activity, primarily due to 3.1 points recorded for the Queensland, Australia floods which was partially offset by a reduction in estimates for earlier 2010 events, while the 2009 fourth quarter did not include any significant catastrophic activity. Estimated net favorable development, before related adjustments, reduced the loss ratio by 1.4 points in the 2010 fourth quarter, compared to 0.6 points in the 2009 fourth quarter. The estimated net favorable development in the 2010 fourth quarter primarily resulted from better than expected claims emergence in property, other short-tail and medium-tail lines.

The underwriting expense ratio was 35.9% in the 2010 fourth quarter, compared to 31.7% in the 2009 fourth quarter. The acquisition expense ratio was 15.4% in the 2010 fourth quarter, compared to 14.1% in the 2009 fourth quarter. The 2010 fourth quarter acquisition expense ratio included 0.7 points of premium assessments and other charges, compared to 0.2 points in the 2009 fourth quarter, and also reflected changes in the form of reinsurance ceded and mix of business. The operating expense ratio was 20.5% in the 2010 fourth quarter, compared to 17.6% in the 2009 fourth quarter.  The 2010 fourth quarter operating expense ratio reflected 1.6 points related to an accrual for certain employee benefit costs which are not expected to impact the insurance segment’s results in 2011. In addition, the 2010 fourth quarter ratio was due in part to a lower level of net premiums earned in the 2010 fourth quarter.

11

Reinsurance Segment

	Three Months Ended
	December 31,
(U.S. dollars in thousands)	2010			2009
Gross premiums written	$	139,015		$	159,229
Net premiums written	131,070			149,383
Net premiums earned	227,871			281,889
Underwriting income	54,149			66,502
Loss ratio	45.0		%	46.7		%
Acquisition expense ratio	18.3		%	21.2		%
Other operating expense ratio	13.9		%	8.6		%
Combined ratio	77.2		%	76.5		%
Catastrophic activity and prior year development:
Current accident year catastrophic events	13.1		%	1.1		%
Net favorable development in prior year loss reserves, net of related adjustments	(13.8		)%	(6.2		)%
Combined ratio excluding such items	77.9		%	81.6		%

Gross premiums written by the reinsurance segment in the 2010 fourth quarter were 12.7% lower than in the 2009 fourth quarter, primarily due to share decreases and non-renewals in casualty business, partially offset by growth in the reinsurance segment’s property other than property catastrophe (including property facultative business) and other specialty lines. Net premiums written by the reinsurance segment in the 2010 fourth quarter were 12.3% lower than in the 2009 fourth quarter, primarily due to the items noted above. Net premiums earned in the 2010 fourth quarter were 19.2% lower than in the 2009 fourth quarter, and reflect changes in net premiums written over the previous five quarters, including the mix and type of business written.

The 2010 fourth quarter loss ratio included 13.1 points related to current year catastrophic activity, which included a 5.0 point increase in the New Zealand earthquake exposure from the 2010 third quarter and 4.4 points from the Queensland, Australia floods, compared to 1.1 points in the 2009 fourth quarter. Estimated net favorable development, before related adjustments, reduced the loss ratio by 14.4 points in the 2010 fourth quarter, compared to 6.3 points in the 2009 fourth quarter. The estimated net favorable development in the 2010 fourth quarter primarily resulted from better than expected claims emergence in casualty business. The 2010 fourth quarter included a higher level of shorter-tail premiums earned and an increase in the percentage of premiums earned from excess of loss contracts than in the 2009 fourth quarter, resulting in a lower loss ratio in the 2010 fourth quarter period.

The underwriting expense ratio was 32.2% in the 2010 fourth quarter, compared to 29.8% in the 2009 fourth quarter. The acquisition expense ratio for the 2010 fourth quarter was 18.3%, compared to 21.2% for the 2009 fourth quarter. The comparison of the 2010 fourth quarter and 2009 fourth 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 operating expense ratio was 13.9% in the 2010 fourth quarter, compared to 8.6% in the 2009 fourth quarter. The higher other operating expense ratio in the 2010 fourth quarter was due in part to an increase in the accrual for incentive compensation costs which added approximately 2.8 points to the current quarter ratio. The increase in the accrual resulted from better than expected underwriting experience from prior years. The 2010 fourth quarter ratio also reflec ts the impact of the lower level of net premiums earned in the period.

12

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

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

	Three Months Ended						Year Ended
	December 31,						December 31,
	2010			2009			2010			2009
Revenues
Net premiums written	$	482,911		$	519,087		$	2,511,040		$	2,763,112
Change in unearned premiums	149,235			189,451			41,443			79,633
Net premiums earned	632,146			708,538			2,552,483			2,842,745
Net investment income	90,601			93,551			364,878			390,131
Net realized gains	74,027			89,901			252,751			143,582
Other-than-temporary impairment losses	(3,341		)	(4,846		)	(13,073		)	(147,509		)
Less investment impairments recognized in other comprehensive income, before taxes	111			353			1,752			81,376
Net impairment losses recognized in earnings	(3,230		)	(4,493		)	(11,321		)	(66,133		)
Fee income	2,814			894			5,365			3,462
Equity in net income of investment funds accounted for using the equity method	22,990			32,391			61,400			167,819
Other income	6,165			5,428			18,511			20,016
Total revenues	825,513			926,210			3,244,067			3,501,622
Expenses
Losses and loss adjustment expenses	367,326			410,360			1,517,715			1,654,674
Acquisition expenses	104,824			120,549			441,202			493,560
Other operating expenses	121,335			105,985			432,795			392,138
Interest expense	7,460			7,015			30,007			24,440
Net foreign exchange (gains) losses	(6,039		)	(9,051		)	(28,108		)	39,157
Total expenses	594,906			634,858			2,393,611			2,603,969
Income before income taxes	230,607			291,352			850,456			897,653
Income tax expense (benefit)	(3,505		)	195			7,868			20,708
Net Income	234,112			291,157			842,588			876,945
Preferred dividends	6,461			6,461			25,844			25,844
Net income available to common shareholders	$	227,651		$	284,696		$	816,744		$	851,101
Net income per common share
Basic	$	4.77		$	4.96		$	16.28		$	14.29
Diluted	$	4.54		$	4.75		$	15.55		$	13.74
Weighted average common shares and common share equivalents outstanding
Basic	47,773,382			57,379,974			50,181,716			59,560,361
Diluted	50,102,143			59,910,667			52,521,719			61,927,132

13

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

	December 31,			December 31,
	2010			2009
Assets
Investments:
Fixed maturities available for sale, at market value (amortized cost: $8,896,957 and $9,227,432)	$	9,082,828		$	9,391,926
Short-term investments available for sale, at market value (amortized cost: $913,488 and $570,469)	915,841			571,489
Investment of funds received under securities lending agreements, at market value (amortized cost: $69,682 and $96,590)	69,660			91,160
TALF investments, at market value (amortized cost: $389,200 and $247,192)	402,449			250,265
Equity securities available for sale, at market value (cost: $346,019 and $36,478)	363,255			36,623
Other investments (cost: $326,324 and $126,027)	349,272			135,549
Investment funds accounted for using the equity method	434,600			391,869
Total investments	11,617,905			10,868,881
Cash	362,740			334,571
Accrued investment income	74,837			70,673
Investment in joint venture (cost: $100,000)	105,698			102,855
Fixed maturities and short-term investments pledged under securities lending agreements, at market value	75,575			212,820
Securities purchased under agreements to resell using funds received under securities lending agreements	—			115,839
Premiums receivable	503,434			595,030
Unpaid losses and loss adjustment expenses recoverable	1,703,201			1,659,500
Paid losses and loss adjustment expenses recoverable	60,784			60,770
Prepaid reinsurance premiums	263,448			277,985
Deferred acquisition costs, net	277,861			280,372
Receivable for securities sold	56,145			187,171
Other assets	669,164			609,323
Total Assets	$	15,770,792		$	15,375,790
Liabilities
Reserve for losses and loss adjustment expenses	$	8,098,454		$	7,873,412
Unearned premiums	1,370,075			1,433,331
Reinsurance balances payable	132,452			156,500
Senior notes	300,000			300,000
Revolving credit agreement borrowings	100,000			100,000
TALF borrowings, at market value (par: $326,219 and $218,740)	325,770			217,565
Securities lending payable	78,021			219,116
Payable for securities purchased	200,192			136,381
Other liabilities	652,825			616,136
Total Liabilities	11,257,789			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: 53,357,872 and 54,761,678)	534			548
Additional paid-in capital	110,325			253,466
Retained earnings	4,422,553			3,605,809
Accumulated other comprehensive income, net of deferred income tax	204,503			138,526
Common shares held in treasury, at cost (shares: 6,813,797 and 0)	(549,912		)	—
Total Shareholders’ Equity	4,513,003			4,323,349
Total Liabilities and Shareholders’ Equity	$	15,770,792		$	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 December 31, 2010

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

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

Arch Capital Group Ltd. and Subsidiaries

Table of Contents

			Page(s)
I.	Financial Highlights		1
II.	Consolidated Financial Statements
	a.	Consolidated Statements of Income	2
	b.	Consolidated Balance Sheets	3
	c.	Consolidated Statements of Changes in Shareholders’ Equity	4
	d.	Consolidated Statements of Comprehensive Income	5
	e.	Consolidated Statements of Cash Flows	6
III.	Segment Information
	a.	Overview	7
	b.	Consolidated Segment Underwriting Results	8-9
	c.	Insurance Segment Underwriting Results	10-11
	d.	Reinsurance Segment Underwriting Results	12-13
IV.	Investment Information
	a.	Investable Asset Summary, Investment Portfolio 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								Year Ended
	December 31,								December 31,
	2010			2009			Change		2010			2009			Change
Gross premiums written	$	664,212		$	718,712		(7.6	)%	$	3,266,787		$	3,592,931		(9.1	)%
Net premiums written	$	482,911		$	519,087		(7.0	)%	$	2,511,040		$	2,763,112		(9.1	)%
Net premiums earned	$	632,146		$	708,538		(10.8	)%	$	2,552,483		$	2,842,745		(10.2	)%
Underwriting income	$	48,356		$	79,218		(39.0	)%	$	195,004		$	336,066		(42.0	)%
Net investment income	$	90,601		$	93,551		(3.2	)%	$	364,878		$	390,131		(6.5	)%
Per diluted share	$	1.81		$	1.56		16.0	%	$	6.95		$	6.30		10.3	%
Net income available to common shareholders	$	227,651		$	284,696		(20.0	)%	$	816,744		$	851,101		(4.0	)%
Per diluted share	$	4.54		$	4.75		(4.4	)%	$	15.55		$	13.74		13.2	%
After-tax operating income available to common shareholders (1)	$	129,489		$	159,431		(18.8	)%	$	491,074		$	651,805		(24.7	)%
Per diluted share	$	2.58		$	2.66		(3.0	)%	$	9.35		$	10.53		(11.2	)%
Comprehensive income	$	50,245		$	207,903		(75.8	)%	$	908,565		$	1,332,534		(31.8	)%
Cash flow from operations	$	144,513		$	183,983		(21.5	)%	$	802,074		$	992,647		(19.2	)%
Diluted weighted average common shares and common share equivalents outstanding	50,102,143			59,910,667			(16.4	)%	52,521,719			61,927,132			(15.2	)%
Underwriting ratios:
Loss ratio	58.1		%	57.9		%	0.2	%	59.5		%	58.2		%	1.3	%
Acquisition expense ratio	16.5		%	16.9		%	(0.4	)%	17.2		%	17.2		%	0.0	%
Other operating expense ratio	18.1		%	14.0		%	4.1	%	15.8		%	12.7		%	3.1	%
Combined ratio	92.7		%	88.8		%	3.9	%	92.5		%	88.1		%	4.4	%
Financial measures:
Growth in book value per common share	0.8		%	5.1		%	(83.7	)%	23.2		%	42.2		%	(44.9	)%
Annualized operating return on average common equity	12.1		%	15.7		%	(22.9	)%	12.0		%	18.3		%	(34.4	)%
Total return on investments (2)	(0.07		)%	1.15		%	-122 bps		7.00		%	11.28		%	-428 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																											Year Ended
	December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			December 31,			December 31,
	2010			2010			2010			2010			2009			2009			2009			2009			2008			2010			2009
Gross premiums written	$	664,212		$	831,788		$	817,100		$	953,687		$	718,712		$	937,328		$	911,920		1,024,971			$	825,465		$	3,266,787		$	3,592,931
Net premiums written	482,911			636,117			624,258			767,754			519,087			727,308			693,854			822,863			615,574			2,511,040			2,763,112
Net premiums earned	632,146			627,409			$	623,011		$	669,917		$	708,538		$	734,385		$	699,258		$	700,564		$	698,514		$	2,552,483		$	2,842,745
Fee income	2,814			874			883			794			894			826			817			925			1,456			5,365			3,462
Losses and loss adjustment expenses	(367,326		)	(359,193		)	(363,145		)	(428,051		)	(410,360		)	(444,914		)	(398,858		)	(400,542		)	(490,816		)	(1,517,715		)	(1,654,674		)
Acquisition expenses, net	(104,824		)	(111,279		)	(107,475		)	(117,624		)	(120,549		)	(122,739		)	(123,814		)	(126,458		)	(123,231		)	(441,202		)	(493,560		)
Other operating expenses	(114,454		)	(97,325		)	(91,030		)	(101,118		)	(99,305		)	(93,723		)	(87,779		)	(81,100		)	(93,580		)	(403,927		)	(361,907		)
Underwriting income (loss)	48,356			60,486			62,244			23,918			79,218			73,835			89,624			93,389			(7,657		)	195,004			336,066
Net investment income	90,601			90,768			90,537			92,972			93,551			100,213			100,485			95,882			111,745			364,878			390,131
Net realized gains (losses)	74,027			68,828			62,114			47,782			89,901			70,638			(11,793		)	(5,164		)	(27,704		)	252,751			143,582
Net impairment losses recognized in earnings	(3,230		)	(2,075		)	(4,410		)	(1,606		)	(4,493		)	(4,643		)	(20,863		)	(36,134		)	(75,169		)	(11,321		)	(66,133		)
Equity in net income (loss) of investment funds accounted for using the equity method	22,990			9,708			(348		)	29,050			32,391			69,119			75,890			(9,581		)	(174,147		)	61,400			167,819
Other income	6,165			1,840			4,528			5,978			5,428			5,687			4,950			3,951			211			18,511			20,016
Other expenses	(6,881		)	(5,796		)	(10,503		)	(5,688		)	(6,680		)	(6,020		)	(11,515		)	(6,016		)	(6,805		)	(28,868		)	(30,231		)
Interest expense	(7,460		)	(7,371		)	(7,916		)	(7,260		)	(7,015		)	(6,001		)	(5,712		)	(5,712		)	(6,285		)	(30,007		)	(24,440		)
Net foreign exchange gains (losses)	6,039			(65,157		)	48,625			38,601			9,051			(19,755		)	(53,658		)	25,205			51,479			28,108			(39,157		)
Income (loss) before income taxes	230,607			151,231			244,871			223,747			291,352			283,073			167,408			155,820			(134,332		)	850,456			897,653
Income tax (expense) benefit	3,505			(3,200		)	(1,420		)	(6,753		)	(195		)	(2,205		)	(8,818		)	(9,490		)	(2,179		)	(7,868		)	(20,708		)
Net income (loss)	234,112			148,031			243,451			216,994			291,157			280,868			158,590			146,330			(136,511		)	842,588			876,945
Preferred dividends	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(25,844		)	(25,844		)
Net income (loss) available to common shareholders	$	227,651		$	141,570		$	236,990		$	210,533		$	284,696		$	274,407		$	152,129		$	139,869		$	(142,972	)	$	816,744		$	851,101
Underwriting Ratios
Loss ratio	58.1		%	57.3		%	58.3		%	63.9		%	57.9		%	60.6		%	57.0		%	57.2		%	70.3		%	59.5		%	58.2		%
Acquisition expense ratio	16.5		%	17.6		%	17.1		%	17.4		%	16.9		%	16.6		%	17.6		%	17.9		%	17.5		%	17.2		%	17.2		%
Other operating expense ratio	18.1		%	15.5		%	14.6		%	15.1		%	14.0		%	12.8		%	12.6		%	11.6		%	13.4		%	15.8		%	12.7		%
Combined ratio	92.7		%	90.4		%	90.0		%	96.4		%	88.8		%	90.0		%	87.2		%	86.7		%	101.2		%	92.5		%	88.1		%
Net premiums written to gross premiums written	72.7		%	76.5		%	76.4		%	80.5		%	72.2		%	77.6		%	76.1		%	80.3		%	74.6		%	76.9		%	76.9		%
Net income (loss) per common share
Basic	$	4.77		$	2.89		$	4.65		$	3.97		$	4.96		$	4.56		$	2.52		$	2.32		$	(2.38	)	$	16.28		$	14.29
Diluted	$	4.54		$	2.77		$	4.45		$	3.79		$	4.75		$	4.39		$	2.43		$	2.24		$	(2.38	)	$	15.55		$	13.74
Weighted average common shares and common share equivalents outstanding
Basic	47,773,382			48,997,791			50,987,540			53,039,026			57,379,974			60,156,219			60,417,391			60,313,550			60,048,258			50,181,716			59,560,361
Diluted	50,102,143			51,182,009			53,265,303			55,513,827			59,910,667			62,533,816			62,626,317			62,559,969			60,048,258			52,521,719			61,927,132

2

Arch Capital Group Ltd. and Subsidiaries

Consolidated Balance Sheets

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

	December 31,			September 30,			June 30,			March 31,		December 31,		September 30,		June 30,			March 31,			December 31,
	2010			2010			2010			2010		2009		2009		2009			2009			2008
Assets
Investments:
Fixed maturities available for sale, at market value	9,082,828			$	9,810,102		$	9,428,456		$	9,295,680	$	9,391,926	$	9,265,961	$	8,944,110		$	8,540,653		$	8,122,221
Short-term investments available for sale, at market value	915,841			780,671			554,304			669,798		571,489		706,157		660,859			749,708			479,586
Investment of funds received under securities lending agreements, at market value (1)	69,660			200,020			209,635			177,954		91,160		252,500		309,000			378,071			473,766
TALF investments, at market value (2)	402,449			410,881			407,469			406,997		250,265		250,517		—			—			—
Equity securities available for sale, at market value	363,255			120,604			62,788			76,333		36,623		31,958		—			—			—
Other investments	349,272			297,807			277,810			187,275		135,549		122,568		115,260			104,988			109,601
Investment funds accounted for using the equity method	434,600			432,418			408,402			405,584		391,869		376,381		370,165			293,452			301,027
Total investments	11,617,905			12,052,503			11,348,864			11,219,621		10,868,881		11,006,042		10,399,394			10,066,872			9,486,201
Cash	362,740			365,997			341,469			338,708		334,571		385,149		336,693			244,037			251,739
Accrued investment income	74,837			79,180			72,102			74,214		70,673		77,762		70,854			65,365			78,052
Investment in joint venture	105,698			104,347			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	75,575			203,221			214,564			184,221		212,820		609,334		559,385			559,691			728,065
Securities purchased under agreements to resell using funds received under securities lending agreements (1)	—			—			—			—		115,839		358,996		247,473			172,750			256,428
Premiums receivable	503,434			662,634			706,503			699,385		595,030		697,806		735,969			720,724			628,951
Unpaid losses and loss adjustment expenses recoverable	1,703,201			1,654,900			1,673,911			1,643,573		1,659,500		1,709,756		1,740,248			1,710,781			1,729,135
Paid losses and loss adjustment expenses recoverable	60,784			60,222			47,148			67,734		60,770		58,588		53,432			76,312			63,294
Prepaid reinsurance premiums	263,448			267,240			256,952			250,841		277,985		283,290		283,488			274,578			303,707
Deferred acquisition costs, net	277,861			297,250			293,982			298,371		280,372		303,826		307,896			313,973			295,192
Receivable for securities sold	56,145			1,329,508			1,084,122			1,427,085		187,171		998,431		1,192,659			1,191,896			105,073
Other assets	669,164			624,395			634,242			628,407		609,323		592,701		613,788			594,165			592,367
Total Assets	$	15,770,792		$	17,701,397		$	16,777,399		$	16,935,106	$	15,375,790	$	17,183,154	$	16,641,935		$	16,092,287		$	14,616,545
Liabilities
Reserve for losses and loss adjustment expenses	8,098,454			8,054,677			7,940,104			$	7,898,162	$	7,873,412	$	7,879,586	$	7,809,034		$	7,709,317		$	7,666,957
Unearned premiums	1,370,075			1,524,100			1,492,550			1,495,265		1,433,331		1,627,519		1,632,989			1,617,431			1,526,682
Reinsurance balances payable	132,452			130,274			128,723			114,254		156,500		159,898		158,974			146,981			138,509
Senior notes	300,000			300,000			300,000			300,000		300,000		300,000		300,000			300,000			300,000
Revolving credit agreement borrowings	100,000			125,000			125,000			100,000		100,000		100,000		100,000			100,000			100,000
TALF borrowings, at market value (2)	325,770			331,797			336,213			346,746		217,565		219,843		—			—			—
Securities lending payable	78,021			209,411			219,796			189,024		219,116		625,706		574,014			574,337			753,528
Payable for securities purchased	200,192			1,649,462			1,192,181			1,429,529		136,381		1,197,411		1,432,395			1,433,732			123,309
Other liabilities	652,825			658,766			644,829			683,369		616,136		612,369		604,561			580,093			574,595
Total Liabilities	11,257,789			12,983,487			12,379,396			12,556,349		11,052,441		12,722,332		12,611,967			12,461,891			11,183,580
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			325,000
Common shares	534			531			529			527		548		595		610			605			605
Additional paid-in capital	110,325			100,640			83,828			95,926		253,466		592,334		681,445			671,547			669,715
Retained earnings	4,422,553			4,194,902			4,053,332			3,816,342		3,605,809		3,321,113		3,046,706			2,894,577			2,693,239
Accumulated other comprehensive income (loss), net of deferred income tax	204,503			388,370			173,231			140,962		138,526		221,780		(23,793		)	(261,333		)	(255,594		)
Common shares held in treasury, at cost	(549,912		)	(291,533		)	(237,917		)	—		—		—		—			—			—
Total Shareholders’ Equity	4,513,003			4,717,910			4,398,003			4,378,757		4,323,349		4,460,822		4,029,968			3,630,396			3,432,965
Total Liabilities and Shareholders’ Equity	$	15,770,792		$	17,701,397		$	16,777,399		$	16,935,106	$	15,375,790	$	17,183,154	$	16,641,935		$	16,092,287		$	14,616,545
Common shares outstanding, net of treasury shares (3)	46,544,075			49,225,371			49,630,570			52,709,934		54,761,678		59,524,309		60,980,806			60,532,222			60,511,974
Book value per common share	$	89.98		$	89.24		$	82.07		$	76.91	$	73.01	$	69.48	$	60.76		$	54.61		$	51.36

(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																											Year Ended
	December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			December 31,			December 31,
	2010			2010			2010			2010			2009			2009			2009			2009			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	531			529			527			548			595			610			605			605			602			548			605
Common shares issued, net	3			2			7			4			4			1			5			0			3			16			10
Purchases of common shares under share repurchase program	—			—			(5		)	(25		)	(51		)	(16		)	(0		)	(0		)	—			(30		)	(67		)
Balance at end of period	534			531			529			527			548			595			610			605			605			534			548
Additional Paid-in Capital
Balance at beginning of period	100,640			83,828			95,926			253,466			592,334			681,445			671,547			669,715			652,189			253,466			669,715
Common shares issued	1,334			283			3,275			14			1,173			0			2,557			0			996			4,906			3,730
Exercise of stock options	2,716			10,486			7,964			16,700			12,380			2,905			705			528			10,593			37,866			16,518
Common shares retired	—			—			(36,212		)	(181,350		)	(358,611		)	(98,632		)	(2,483		)	(3,760		)	(39		)	(217,562		)	(463,486		)
Amortization of share-based compensation	5,615			6,074			12,280			7,096			6,199			6,576			9,949			4,318			5,974			31,065			27,042
Other	20			(31		)	595			—			(9		)	40			(830		)	746			2			584			(53		)
Balance at end of period	110,325			100,640			83,828			95,926			253,466			592,334			681,445			671,547			669,715			110,325			253,466
Retained Earnings
Balance at beginning of period	4,194,902			4,053,332			3,816,342			3,605,809			3,321,113			3,046,706			2,894,577			2,693,239			2,836,211			3,605,809			2,693,239
Cumulative effect of change in accounting principle (1)	—			—			—			—			—			—			—			61,469			—			0			61,469
Balance at beginning of period, as adjusted	4,194,902			4,053,332			3,816,342			3,605,809			3,321,113			3,046,706			2,894,577			2,754,708			2,836,211			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		)	(25,844		)	(25,844		)
Net income (loss)	234,112			148,031			243,451			216,994			291,157			280,868			158,590			146,330			(136,511		)	842,588			876,945
Balance at end of period	4,422,553			4,194,902			4,053,332			3,816,342			3,605,809			3,321,113			3,046,706			2,894,577			2,693,239			4,422,553			3,605,809
Accumulated Other Comprehensive Income (Loss)
Balance at beginning of period	388,370			173,231			140,962			138,526			221,780			(23,793		)	(261,333		)	(255,594		)	(297,292		)	138,526			(255,594		)
Cumulative effect of change in accounting principle (1)	—			—			—			—			—			—			—			(61,469		)	—			0			(61,469		)
Balance at beginning of period, as adjusted	388,370			173,231			140,962			138,526			221,780			(23,793		)	(261,333		)	(317,063		)	(297,292		)	138,526			(317,063		)
Change in unrealized appreciation (decline) in value of investments, net of deferred income tax	(185,221		)	208,310			38,476			5,240			(83,840		)	248,581			241,588			119,277			64,976			66,805			525,606
Portion of other-than-temporary impairment losses recognized in other comprehensive income, net of deferred income tax	(111		)	(603		)	(308		)	(730		)	(353		)	(3,217		)	(16,518		)	(61,288		)	—			(1,752		)	(81,376		)
Foreign currency translation adjustments, net of deferred income tax	1,465			7,432			(5,899		)	(2,074		)	939			209			12,470			(2,259		)	(23,278		)	924			11,359
Balance at end of period	204,503			388,370			173,231			140,962			138,526			221,780			(23,793		)	(261,333		)	(255,594		)	204,503			138,526
Common Shares Held in Treasury, at Cost
Balance at beginning of period	(291,533		)	(237,917		)	—			—			—			—			—			—			—			—			—
Shares repurchased for treasury	(258,379		)	(53,616		)	(237,917		)	—			—			—			—			—			—			(549,912		)	—
Balance at end of period	(549,912		)	(291,533		)	(237,917		)	—			—			—			—			—			—			(549,912		)	—
Total Shareholders’ Equity	$	4,513,003		$	4,717,910		$	4,398,003		$	4,378,757		$	4,323,349		$	4,460,822		$	4,029,968		$	3,630,396		$	3,432,965		$	4,513,003		$	4,323,349

(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																											Year Ended
	December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			December 31,			December 31,
	2010			2010			2010			2010			2009			2009			2009			2009			2008			2010			2009
Comprehensive Income (Loss)
Net income (loss)	$	234,112		$	148,031		$	243,451		$	216,994		$	291,157		$	280,868		$	158,590		$	146,330		$	(136,511	)	$	842,588		$	876,945
Other comprehensive income (loss), net of deferred income tax
Unrealized holding gains (losses) arising during period	(141,807		)	264,609			71,087			42,847			(8,954		)	300,733			219,648			62,757			(69,067		)	236,736			574,184
Portion of other-than-temporary impairment losses recognized in other comprehensive income, net of deferred income tax	(111		)	(603		)	(308		)	(730		)	(353		)	(3,217		)	(16,518		)	(61,288		)	—			(1,752		)	(81,376		)
Reclassification of net realized (gains) losses, net of income taxes, included in net income	(43,414		)	(56,299		)	(32,611		)	(37,607		)	(74,886		)	(52,152		)	21,940			56,520			134,043			(169,931		)	(48,578		)
Foreign currency translation adjustments	1,465			7,432			(5,899		)	(2,074		)	939			209			12,470			(2,259		)	(23,278		)	924			11,359
Other comprehensive income (loss)	(183,867		)	215,139			32,269			2,436			(83,254		)	245,573			237,540			55,730			41,698			65,977			455,589
Comprehensive Income (Loss)	$	50,245		$	363,170		$	275,720		$	219,430		$	207,903		$	526,441		$	396,130		$	202,060		$	(94,813	)	$	908,565		$	1,332,534

5

Arch Capital Group Ltd. and Subsidiaries

Consolidated Statements of Cash Flows

(U.S. dollars in thousands)

	Three Months Ended																											Year Ended
	December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			December 31,			December 31,
	2010			2010			2010			2010			2009			2009			2009			2009			2008			2010			2009
Operating Activities
Net income (loss)	$	234,112		$	148,031		$	243,451		$	216,994		$	291,157		$	280,868		$	158,590		$	146,330		$	(136,511	)	$	842,588		$	876,945
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized (gains) losses	(78,261		)	(72,534		)	(62,406		)	(49,483		)	(70,680		)	(70,612		)	11,831			5,620			28,383			(262,684		)	(123,841		)
Net impairment losses included in earnings	3,230			2,075			4,410			1,606			4,493			4,643			20,863			36,134			75,169			11,321			66,133
Equity in net (income) loss of investment funds accounted for using the equity method and other income	(26,110		)	(11,545		)	(3,368		)	(15,012		)	(37,819		)	(74,985		)	(80,662		)	10,428			173,955			(56,035		)	(183,038		)
Share-based compensation	5,615			6,074			12,280			7,096			6,199			6,576			9,949			4,318			5,974			31,065			27,042
Changes in:
Reserve for losses and loss adjustment expenses, net of unpaid losses and loss adjustment expenses recoverable	3,546			49,420			71,357			91,247			50,992			79,701			5,151			83,763			226,284			215,570			219,607
Unearned premiums, net of prepaid reinsurance premiums	(149,242		)	9,024			236			96,645			(188,951		)	(6,983		)	(4,775		)	120,867			(75,899		)	(43,337		)	(79,842		)
Premiums receivable	157,034			63,197			(20,280		)	(116,571		)	99,023			41,108			(916		)	(94,777		)	18,896			83,380			44,438
Deferred acquisition costs, net	18,910			47			2,038			(19,655		)	23,636			4,356			8,513			(18,933		)	10,955			1,340			17,572
Reinsurance balances payable	3,277			(4,853		)	19,267			(36,669		)	(1,467		)	(85		)	6,187			11,278			(31,791		)	(18,978		)	15,913
Other liabilities	(47,339		)	23,914			(57,219		)	41,448			(26,439		)	(5,849		)	5,189			2,802			(131,774		)	(39,196		)	(24,297		)
Other items, net	19,741			54,574			(4,252		)	(33,023		)	33,839			31,381			83,822			(13,027		)	2,460			37,040			136,015
Net Cash Provided By Operating Activities	144,513			267,424			205,514			184,623			183,983			290,119			223,742			294,803			166,101			802,074			992,647
Investing Activities
Purchases of:
Fixed maturity investments	(2,434,319		)	(5,018,619		)	(4,885,606		)	(4,597,713		)	(5,221,819		)	(6,675,195		)	(6,336,120		)	(3,037,132		)	(6,221,128		)	(16,936,257		)	(21,270,266		)
Equity securities	(226,677		)	(65,155		)	(21,727		)	(52,283		)	(35,470		)	(34,532		)	—			—			—			(365,842		)	(70,002		)
Other investments	(147,127		)	(92,955		)	(150,631		)	(132,819		)	(184,598		)	(8,528		)	(9,681		)	(22,670		)	(254,729		)	(523,532		)	(225,477		)
Proceeds from the sales of:																												—			—
Fixed maturity investments	2,670,332			4,872,668			4,668,666			4,443,108			5,054,102			6,066,081			5,875,303			2,782,462			5,664,590			16,654,774			19,777,948
Equity securities	14,522			19,151			25,043			11,725			35,097			3,239			—			—			—			70,441			38,336
Other investments	133,211			68,843			87,536			89,510			200,912			79,378			(4,233		)	24,027			224,466			379,100			300,084
Proceeds from redemptions and maturities of fixed maturities	266,044			226,889			244,312			212,625			146,480			261,604			208,276			168,758			137,665			949,870			785,118
Net (purchases) sales of short-term investments	(129,794		)	(205,411		)	96,239			(102,921		)	129,070			(48,395		)	143,819			(204,924		)	312,038			(341,887		)	19,570
Change in investment of securities lending collateral	131,389			10,385			(30,772		)	30,092			406,590			(51,692		)	323			179,191			196,799			141,094			534,412
Purchases of furniture, equipment and other	(1,553		)	(2,251		)	(6,057		)	(1,803		)	(3,897		)	(4,067		)	(3,872		)	(7,647		)	(2,745		)	(11,664		)	(19,483		)
Net Cash Provided By (Used For) Investing Activities	276,028			(186,455		)	27,003			(100,479		)	526,467			(412,107		)	(126,185		)	(117,935		)	56,956			16,097			(129,760		)
Financing Activities
Purchases of common shares under share repurchase program	(258,150		)	(53,398		)	(269,054		)	(181,272		)	(358,656		)	(98,194		)	—			(1,552		)	—			(761,874		)	(458,402		)
Proceeds from common shares issued, net	4,693			8,586			3,779			10,591			9,194			2,152			308			(1,688		)	10,497			27,649			9,966
Proceeds from borrowings	—			—			50,000			214,526			—			269,843			—			—			—			264,526			269,843
Repayments of borrowings	(31,072		)	(5,646		)	(34,022		)	(86,317		)	(1,103		)	(50,000		)	—			—			—			(157,057		)	(51,103		)
Change in securities lending collateral	(131,389		)	(10,385		)	30,772			(30,092		)	(406,590		)	51,692			(323		)	(179,191		)	(196,799		)	(141,094		)	(534,412		)
Other	(893		)	1,593			2,296			5,061			4,816			88			(1,291		)	742			698			8,057			4,355
Preferred dividends paid	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(25,844		)	(25,844		)
Net Cash Provided By (Used For) Financing Activities	(423,272		)	(65,711		)	(222,690		)	(73,964		)	(758,800		)	169,120			(7,767		)	(188,150		)	(192,065		)	(785,637		)	(785,597		)
Effects of exchange rate changes on foreign currency cash	(526		)	9,270			(7,066		)	(6,043		)	(2,228		)	1,324			2,866			3,580			(18,350		)	(4,365		)	5,542
Increase (decrease) in cash	(3,257		)	24,528			2,761			4,137			(50,578		)	48,456			92,656			(7,702		)	12,642			28,169			82,832
Cash beginning of period	365,997			341,469			338,708			334,571			385,149			336,693			244,037			251,739			239,097			334,571			251,739
Cash end of period	$	362,740		$	365,997		341,469			$	338,708		$	334,571		$	385,149		$	336,693		$	244,037		$	251,739		$	362,740		$	334,571
Income taxes paid (received), net	$	3,140		$	1,928		$	1,430		$	704		$	5,021		$	4,234		$	19,887		$	2,231		$	(994	)	$	7,202		$	31,373
Interest paid	$	12,831		$	1,832		$	13,437		$	1,785		$	12,556		$	529		$	11,312		$	184		$	11,802		$	29,885		$	24,581

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 December 31, 2010 and 2009

(U.S. dollars in thousands)

	Three Months Ended									Three Months Ended
	December 31, 2010									December 31, 2009
	Insurance			Reinsurance			Total			Insurance			Reinsurance			Total
Gross premiums written (1)	$	527,783		$	139,015		$	664,212		$	563,087		$	159,229		$	718,712
Net premiums written	351,841			131,070			482,911			369,704			149,383			519,087
Net premiums earned	$	404,275		$	227,871		$	632,146		$	426,649		$	281,889		$	708,538
Fee income	761			2,053			2,814			883			11			894
Losses and loss adjustment expenses	(264,848		)	(102,478		)	(367,326		)	(278,746		)	(131,614		)	(410,360		)
Acquisition expenses, net	(63,102		)	(41,722		)	(104,824		)	(60,926		)	(59,623		)	(120,549		)
Other operating expenses	(82,879		)	(31,575		)	(114,454		)	(75,144		)	(24,161		)	(99,305		)
Underwriting income (loss)	$	(5,793	)	$	54,149		48,356			$	12,716		$	66,502		79,218
Net investment income							90,601									93,551
Net realized gains							74,027									89,901
Net impairment losses recognized in earnings							(3,230		)							(4,493		)
Equity in net income of investment funds accounted for using the equity method							22,990									32,391
Other income							6,165									5,428
Other expenses							(6,881		)							(6,680		)
Interest expense							(7,460		)							(7,015		)
Net foreign exchange gains							6,039									9,051
Income before income taxes							230,607									291,352
Income tax (expense) benefit							3,505									(195		)
Net income							234,112									291,157
Preferred dividends							(6,461		)							(6,461		)
Net income available to common shareholders							$	227,651								$	284,696
Underwriting Ratios
Loss ratio	65.5		%	45.0		%	58.1		%	65.3		%	46.7		%	57.9		%
Acquisition expense ratio (2)	15.4		%	18.3		%	16.5		%	14.1		%	21.2		%	16.9		%
Other operating expense ratio	20.5		%	13.9		%	18.1		%	17.6		%	8.6		%	14.0		%
Combined ratio	101.4		%	77.2		%	92.7		%	97.0		%	76.5		%	88.8		%
Net premiums written to gross premiums written	66.7		%	94.3		%	72.7		%	65.7		%	93.8		%	72.2		%

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

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

8

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Years Ended December 31, 2010 and 2009

(U.S. dollars in thousands)

	Year Ended									Year Ended
	December 31, 2010									December 31, 2009
	Insurance			Reinsurance			Total			Insurance			Reinsurance			Total
Gross premiums written (1)	$	2,402,202		$	874,957		$	3,266,787		$	2,512,127		$	1,093,940		$	3,592,931
Net premiums written	1,658,963			852,077			2,511,040			1,704,284			1,058,828			2,763,112
Net premiums earned	$	1,651,106		$	901,377		$	2,552,483		$	1,688,519		$	1,154,226		$	2,842,745
Fee income	3,252			2,113			5,365			3,362			100			3,462
Losses and loss adjustment expenses	(1,117,564		)	(400,151		)	(1,517,715		)	(1,139,415		)	(515,259		)	(1,654,674		)
Acquisition expenses, net	(263,201		)	(178,001		)	(441,202		)	(238,261		)	(255,299		)	(493,560		)
Other operating expenses	(312,404		)	(91,523		)	(403,927		)	(281,340		)	(80,567		)	(361,907		)
Underwriting income (loss)	$	(38,811	)	$	233,815		195,004			$	32,865		$	303,201		336,066
Net investment income							364,878									390,131
Net realized gains							252,751									143,582
Net impairment losses recognized in earnings							(11,321		)							(66,133		)
Equity in net income of investment funds accounted for using the equity method							61,400									167,819
Other income							18,511									20,016
Other expenses							(28,868		)							(30,231		)
Interest expense							(30,007		)							(24,440		)
Net foreign exchange gains (losses)							28,108									(39,157		)
Income before income taxes							850,456									897,653
Income tax expense							(7,868		)							(20,708		)
Net income							842,588									876,945
Preferred dividends							(25,844		)							(25,844		)
Net income available to common shareholders							$	816,744								$	851,101
Underwriting Ratios
Loss ratio	67.7		%	44.4		%	59.5		%	67.5		%	44.6		%	58.2		%
Acquisition expense ratio (2)	15.7		%	19.7		%	17.2		%	13.9		%	22.1		%	17.2		%
Other operating expense ratio	18.9		%	10.2		%	15.8		%	16.7		%	7.0		%	12.7		%
Combined ratio	102.3		%	74.3		%	92.5		%	98.1		%	73.7		%	88.1		%
Net premiums written to gross premiums written	69.1		%	97.4		%	76.9		%	67.8		%	96.8		%	76.9		%

(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						Year Ended
	December 31,						December 31,
	2010			2009			2010			2009
	Amount		% of Total	Amount		% of Total	Amount		% of Total	Amount		% of Total
Net premiums written
Property, energy, marine and aviation	$	44,258	12.6	$	42,811	11.6	$	321,529	19.4	$	353,761	20.8
Programs	60,969		17.3	60,685		16.4	273,076		16.5	274,735		16.1
Professional liability	44,743		12.7	60,109		16.3	240,345		14.5	235,892		13.8
Executive assurance	56,712		16.1	58,561		15.8	224,497		13.5	220,088		12.9
Construction	24,566		7.0	24,503		6.6	135,619		8.2	154,087		9.0
Casualty	27,389		7.8	23,037		6.2	107,962		6.5	103,546		6.1
Travel and accident	14,486		4.1	15,528		4.2	71,237		4.3	68,617		4.0
National accounts casualty	14,024		4.0	16,553		4.5	67,925		4.1	79,088		4.6
Healthcare	10,290		2.9	10,610		2.9	37,508		2.3	42,350		2.5
Surety	7,918		2.3	10,716		2.9	34,149		2.1	43,353		2.5
Other (1)	46,486		13.2	46,591		12.6	145,116		8.6	128,767		7.7
Total	$	351,841	100.0	$	369,704	100.0	$	1,658,963	100.0	$	1,704,284	100.0
Net premiums earned
Property, energy, marine and aviation	$	77,811	19.2	$	91,549	21.5	$	335,967	20.3	$	338,430	20.0
Programs	69,462		17.2	67,672		15.9	272,406		16.5	275,586		16.3
Professional liability	56,630		14.0	59,678		14.0	240,300		14.6	232,001		13.7
Executive assurance	56,530		14.0	56,764		13.3	220,364		13.3	212,962		12.6
Construction	32,099		7.9	36,800		8.6	131,468		8.0	163,079		9.7
Casualty	25,893		6.4	27,198		6.4	109,613		6.6	121,146		7.2
Travel and accident	15,705		3.9	16,580		3.9	66,791		4.0	66,127		3.9
National accounts casualty	17,360		4.3	19,606		4.6	74,538		4.5	67,093		4.0
Healthcare	9,701		2.4	9,886		2.3	39,722		2.4	43,947		2.6
Surety	9,810		2.4	11,448		2.7	37,967		2.3	49,219		2.9
Other (1)	33,274		8.3	29,468		6.8	121,970		7.5	118,929		7.1
Total	$	404,275	100.0	$	426,649	100.0	$	1,651,106	100.0	$	1,688,519	100.0
Net premiums written by client location
United States	$	260,226	74.0	$	269,816	73.0	$	1,183,238	71.3	$	1,268,347	74.4
Europe	44,565		12.7	58,462		15.8	272,348		16.4	267,093		15.7
Other	47,050		13.3	41,426		11.2	203,377		12.3	168,844		9.9
Total	$	351,841	100.0	$	369,704	100.0	$	1,658,963	100.0	$	1,704,284	100.0
Net premiums written by underwriting location
United States	$	248,197	70.5	$	270,216	73.1	$	1,133,173	68.3	$	1,243,063	72.9
Europe	78,732		22.4	82,845		22.4	436,483		26.3	384,363		22.6
Other	24,912		7.1	16,643		4.5	89,307		5.4	76,858		4.5
Total	$	351,841	100.0	$	369,704	100.0	$	1,658,963	100.0	$	1,704,284	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																											Year Ended
	December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			December 31,			December 31,
	2010			2010			2010			2010			2009			2009			2009			2009			2008			2010			2009
Gross premiums written	$	527,783		$	624,490		$	616,353		$	633,576		$	563,087		$	673,986		$	636,645		$	638,409		$	564,570		$	2,402,202		$	2,512,127
Net premiums written	351,841			431,361			422,837			452,924			369,704			473,676			419,318			441,586			367,223			1,658,963			1,704,284
Net premiums earned	$	404,275		$	411,881		$	405,473		$	429,477		$	426,649		$	443,319		$	417,454		$	401,097		$	398,355		$	1,651,106		$	1,688,519
Fee income	761			864			874			753			883			814			795			870			811			3,252			3,362
Losses and loss adjustment expenses	(264,848		)	(265,411		)	(275,294		)	(312,011		)	(278,746		)	(303,304		)	(287,350		)	(270,015		)	(307,136		)	(1,117,564		)	(1,139,415		)
Acquisition expenses, net	(63,102		)	(67,309		)	(65,359		)	(67,431		)	(60,926		)	(60,964		)	(58,748		)	(57,623		)	(54,498		)	(263,201		)	(238,261		)
Other operating expenses	(82,879		)	(77,078		)	(71,727		)	(80,720		)	(75,144		)	(72,452		)	(70,836		)	(62,908		)	(71,819		)	(312,404		)	(281,340		)
Underwriting income (loss)	$	(5,793	)	$	2,947		$	(6,033	)	$	(29,932	)	$	12,716		$	7,413		$	1,315		$	11,421		$	(34,287	)	$	(38,811	)	$	32,865
Underwriting Ratios
Loss ratio	65.5		%	64.4		%	67.9		%	72.6		%	65.3		%	68.4		%	68.8		%	67.3		%	77.1		%	67.7		%	67.5		%
Acquisition expense ratio (1)	15.4		%	16.1		%	15.9		%	15.5		%	14.1		%	13.6		%	13.9		%	14.1		%	13.5		%	15.7		%	13.9		%
Other operating expense ratio	20.5		%	18.7		%	17.7		%	18.8		%	17.6		%	16.3		%	17.0		%	15.7		%	18.0		%	18.9		%	16.7		%
Combined ratio	101.4		%	99.2		%	101.5		%	106.9		%	97.0		%	98.3		%	99.7		%	97.1		%	108.6		%	102.3		%	98.1		%
Net premiums written
Property, energy, marine and aviation	$	44,258		$	88,412		$	88,194		$	100,665		$	42,811		$	118,536		$	86,385		$	106,029		$	56,263		$	321,529		$	353,761
Programs	60,969			68,264			73,345			70,498			60,685			66,964			72,279			74,807			64,619			273,076			274,735
Professional liability	44,743			72,787			64,089			58,726			60,109			66,002			57,773			52,008			58,449			240,345			235,892
Executive assurance	56,712			53,538			52,892			61,355			58,561			58,529			52,919			50,079			54,028			224,497			220,088
Construction	24,566			24,296			50,435			36,322			24,503			36,823			56,190			36,571			31,989			135,619			154,087
Casualty	27,389			28,493			26,617			25,463			23,037			26,753			27,217			26,539			27,936			107,962			103,546
Travel and accident	14,486			19,673			15,272			21,806			15,528			15,998			19,557			17,534			12,436			71,237			68,617
National accounts casualty	14,024			19,215			3,877			30,809			16,553			30,726			7,582			24,227			8,856			67,925			79,088
Healthcare	10,290			8,705			9,989			8,524			10,610			10,854			9,667			11,219			11,161			37,508			42,350
Surety	7,918			11,128			7,012			8,091			10,716			12,025			9,254			11,358			12,704			34,149			43,353
Other (2)	46,486			36,850			31,115			30,665			46,591			30,466			20,495			31,215			28,782			145,116			128,767
Total	$	351,841		$	431,361		$	422,837		$	452,924		$	369,704		$	473,676		$	419,318		$	441,586		$	367,223		$	1,658,963		$	1,704,284
Net premiums earned
Property, energy, marine and aviation	$	77,811		$	82,301		$	80,818		$	95,037		$	91,549		$	94,471		$	78,570		$	73,840		$	76,586		$	335,967		$	338,430
Programs	69,462			68,404			68,381			66,159			67,672			69,436			71,809			66,669			66,462			272,406			275,586
Professional liability	56,630			63,522			57,903			62,245			59,678			57,540			56,549			58,234			58,195			240,300			232,001
Executive assurance	56,530			52,369			55,143			56,322			56,764			56,094			52,288			47,816			45,192			220,364			212,962
Construction	32,099			31,348			33,536			34,485			36,800			42,495			43,364			40,420			38,603			131,468			163,079
Casualty	25,893			27,503			28,148			28,069			27,198			30,004			31,246			32,698			35,251			109,613			121,146
Travel and accident	15,705			17,418			17,590			16,078			16,580			18,193			18,198			13,156			13,414			66,791			66,127
National accounts casualty	17,360			18,595			16,810			21,773			19,606			19,969			13,079			14,439			10,924			74,538			67,093
Healthcare	9,701			9,738			10,340			9,943			9,886			12,303			10,830			10,928			10,880			39,722			43,947
Surety	9,810			9,876			8,023			10,258			11,448			12,239			12,141			13,391			12,109			37,967			49,219
Other (2)	33,274			30,807			28,781			29,108			29,468			30,575			29,380			29,506			30,739			121,970			118,929
Total	$	404,275		$	411,881		$	405,473		$	429,477		$	426,649		$	443,319		$	417,454		$	401,097		$	398,355		$	1,651,106		$	1,688,519

(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 December 31,						Year Ended December 31,
	2010			2009			2010			2009
	Amount		% of Total	Amount		% of Total	Amount		% of Total	Amount		% of Total
Net premiums written
Property excluding property catastrophe (1)	$	46,835	35.7	$	49,413	33.1	$	249,791	29.3	$	349,915	33.0
Property catastrophe	3,529		2.7	3,022		2.0	202,989		23.8	237,445		22.4
Casualty (2)	32,274		24.6	68,693		46.0	186,774		21.9	325,699		30.8
Other specialty	27,008		20.6	10,578		7.1	131,158		15.4	65,189		6.2
Marine and aviation	21,303		16.3	17,576		11.8	77,063		9.0	77,677		7.3
Other	121		0.1	101		—	4,302		0.6	2,903		0.3
Total	$	131,070	100.0	$	149,383	100.0	$	852,077	100.0	$	1,058,828	100.0
Net premiums earned
Property excluding property catastrophe (1)	$	70,744	31.0	$	94,716	33.6	$	282,163	31.3	$	373,088	32.3
Property catastrophe	54,768		24.0	56,937		20.2	215,148		23.9	236,073		20.5
Casualty (2)	48,609		21.3	86,193		30.6	231,338		25.7	344,938		29.9
Other specialty	30,296		13.3	24,085		8.5	95,611		10.6	106,698		9.2
Marine and aviation	22,445		9.8	18,882		6.7	72,886		8.1	90,441		7.8
Other	1,009		0.6	1,076		0.4	4,231		0.4	2,988		0.3
Total	$	227,871	100.0	$	281,889	100.0	$	901,377	100.0	$	1,154,226	100.0
Net premiums written
Pro rata	$	103,124	78.7	$	116,919	78.3	$	411,962	48.3	$	586,212	55.4
Excess of loss	27,946		21.3	32,464		21.7	440,115		51.7	472,616		44.6
Total	$	131,070	100.0	$	149,383	100.0	$	852,077	100.0	$	1,058,828	100.0
Net premiums earned
Pro rata	$	112,589	49.4	$	163,716	58.1	$	449,532	49.9	$	704,470	61.0
Excess of loss	115,282		50.6	118,173		41.9	451,845		50.1	449,756		39.0
Total	$	227,871	100.0	$	281,889	100.0	$	901,377	100.0	$	1,154,226	100.0
Net premiums written by client location
United States	$	63,690	48.6	$	70,895	47.5	$	496,947	58.3	$	668,985	63.2
Europe	29,436		22.5	41,637		27.9	195,006		22.9	213,211		20.1
Bermuda	13,490		10.3	26,771		17.9	75,517		8.9	127,212		12.0
Other	24,454		18.6	10,080		6.7	84,607		9.9	49,420		4.7
Total	$	131,070	100.0	$	149,383	100.0	$	852,077	100.0	$	1,058,828	100.0
Net premiums written by underwriting location
Bermuda	$	63,955	48.8	$	75,394	50.5	$	461,890	54.2	$	596,334	56.3
United States	57,435		43.8	65,297		43.7	307,639		36.1	396,947		37.5
Other	9,680		7.4	8,692		5.8	82,548		9.7	65,547		6.2
Total	$	131,070	100.0	$	149,383	100.0	$	852,077	100.0	$	1,058,828	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																											Year Ended
	December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			December 31,			December 31,
	2010			2010			2010			2010			2009			2009			2009			2009			2008			2010			2009
Gross premiums written	$	139,015		$	208,770		$	203,695		$	323,477		$	159,229		$	266,193		$	278,389		$	390,129		$	266,165		$	874,957		$	1,093,940
Net premiums written	131,070			204,756			201,421			314,830			149,383			253,632			274,536			381,277			248,351			852,077			1,058,828
Net premiums earned	$	227,871		$	215,528		$	217,538		$	240,440		$	281,889		$	291,066		$	281,804		$	299,467		$	300,159		$	901,377		$	1,154,226
Fee income	2,053			10			9			41			11			12			22			55			645			2,113			100
Losses and loss adjustment expenses	(102,478		)	(93,782		)	(87,851		)	(116,040		)	(131,614		)	(141,610		)	(111,508		)	(130,527		)	(183,680		)	(400,151		)	(515,259		)
Acquisition expenses, net	(41,722		)	(43,970		)	(42,116		)	(50,193		)	(59,623		)	(61,775		)	(65,066		)	(68,835		)	(68,733		)	(178,001		)	(255,299		)
Other operating expenses	(31,575		)	(20,247		)	(19,303		)	(20,398		)	(24,161		)	(21,271		)	(16,943		)	(18,192		)	(21,761		)	(91,523		)	(80,567		)
Underwriting income	$	54,149		$	57,539		$	68,277		$	53,850		$	66,502		$	66,422		$	88,309		$	81,968		$	26,630		$	233,815		$	303,201
Underwriting Ratios
Loss ratio	45.0		%	43.5		%	40.4		%	48.3		%	46.7		%	48.7		%	39.6		%	43.6		%	61.2		%	44.4		%	44.6		%
Acquisition expense ratio	18.3		%	20.4		%	19.4		%	20.9		%	21.2		%	21.2		%	23.1		%	23.0		%	22.9		%	19.7		%	22.1		%
Other operating expense ratio	13.9		%	9.4		%	8.9		%	8.5		%	8.6		%	7.3		%	6.0		%	6.1		%	7.2		%	10.2		%	7.0		%
Combined ratio	77.2		%	73.3		%	68.7		%	77.7		%	76.5		%	77.2		%	68.7		%	72.7		%	91.3		%	74.3		%	73.7		%
Net premiums written
Property excluding property catastrophe (1)	$	46,835		$	70,149		$	57,880		$	74,927		$	49,413		$	90,845		$	90,569		$	119,088		$	90,909		$	249,791		$	349,915
Property catastrophe	3,529			40,255			70,403			88,802			3,022			50,539			91,981			91,903			27,534			202,989			237,445
Casualty (2)	32,274			38,276			43,642			72,582			68,693			85,084			72,490			99,432			71,740			186,774			325,699
Other specialty	27,008			30,468			18,920			54,762			10,578			10,595			3,304			40,712			26,066			131,158			65,189
Marine and aviation	21,303			24,913			9,609			21,238			17,576			16,187			15,391			28,523			31,867			77,063			77,677
Other	121			695			967			2,519			101			382			801			1,619			235			4,302			2,903
Total	$	131,070		$	204,756		$	201,421		$	314,830		$	149,383		$	253,632		$	274,536		$	381,277		$	248,351		$	852,077		$	1,058,828
Net premiums earned
Property excluding property catastrophe (1)	70,744			$	66,438		$	65,742		$	79,239		$	94,716		$	94,837		$	87,304		$	96,231		$	78,778		$	282,163		$	373,088
Property catastrophe	54,768			54,206			52,301			53,873			56,937			61,772			58,763			58,601			60,975			215,148			236,073
Casualty (2)	48,609			52,792			59,501			70,436			86,193			88,721			84,078			85,946			95,990			231,338			344,938
Other specialty	30,296			25,254			22,292			17,769			24,085			23,251			25,912			33,450			36,255			95,611			106,698
Marine and aviation	22,445			16,106			16,263			18,072			18,882			21,666			25,063			24,830			26,877			72,886			90,441
Other	1,009			732			1,439			1,051			1,076			819			684			409			1,284			4,231			2,988
Total	$	227,871		$	215,528		$	217,538		$	240,440		$	281,889		$	291,066		$	281,804		$	299,467		$	300,159		$	901,377		$	1,154,226

(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, Investment Portfolio Metrics and Credit Quality Distribution

(U.S. dollars in thousands)

	December 31,					September 30,					June 30,					March 31,					December 31,
	2010					2010					2010					2010					2009
Investable assets:
Fixed maturities available for sale, at market value	$	9,082,828		76	%	$	9,810,102		81	%	$	9,428,456		81	%	$	9,295,680		80	%	$	9,391,926		83	%
Fixed maturities pledged under securities lending agreements, at market value (1)	75,575			1	%	184,226			2	%	195,372			2	%	181,871			2	%	208,826			2	%
Total fixed maturities	9,158,403			77	%	9,994,328			83	%	9,623,828			83	%	9,477,551			82	%	9,600,752			85	%
Short-term investments available for sale, at market value	915,841			8	%	780,671			6	%	554,304			5	%	669,798			6	%	571,490			5	%
Short-term investments pledged under securities lending agreements, at market value (1)	—			0	%	18,995			0	%	19,192			0	%	2,350			0	%	3,993			0	%
Cash	362,740			3	%	365,997			3	%	341,469			3	%	338,708			3	%	334,571			3	%
TALF investments, at market value (2)	402,449			3	%	410,881			3	%	407,469			4	%	406,997			3	%	250,265			2	%
Equity securities available for sale, at market value	363,255			3	%	120,604			1	%	62,788			1	%	76,333			1	%	36,623			0	%
Other investments	349,272			3	%	297,807			3	%	277,810			2	%	187,275			2	%	135,549			1	%
Investment funds accounted for using the equity method	434,600			4	%	432,418			4	%	408,402			3	%	405,584			3	%	391,869			3	%
Securities transactions entered into but not settled at the balance sheet date	(144,047		)	(1	)%	(319,954		)	(3	)%	(108,059		)	(1	)%	(2,444		)	0	%	50,790			1	%
Total investable assets (1)	$	11,842,513		100	%	$	12,101,747		100	%	$	11,587,203		100	%	$	11,562,152		100	%	$	11,375,902		100	%
Investment portfolio metrics (1):
Average effective duration (in years)	2.83					3.11					2.90					2.77					2.87
Average credit quality	AA+					AA+					AA+					AA+					AA+
Imbedded book yield (before investment expenses)	3.52		%			3.53		%			3.39		%			3.57		%			3.64		%
Credit quality distribution of total fixed maturities (1) (3):
AAA	$	6,531,757		71	%	$	7,503,390		75	%	$	7,278,291		76	%	$	7,010,314		74	%	$	7,072,381		74	%
AA	1,053,666			12	%	993,018			10	%	1,011,324			10	%	1,117,951			12	%	1,281,377			13	%
A	605,483			7	%	573,298			6	%	543,359			6	%	580,769			6	%	547,104			6	%
BBB	388,564			4	%	347,810			4	%	274,738			3	%	263,195			3	%	231,988			2	%
BB	133,673			1	%	132,618			1	%	109,407			1	%	97,634			1	%	85,952			1	%
B	242,479			3	%	223,582			2	%	202,476			2	%	204,743			2	%	209,417			2	%
Lower than B	109,596			1	%	115,686			1	%	117,419			1	%	118,362			1	%	80,871			1	%
Not rated	93,185			1	%	104,926			1	%	86,814			1	%	84,583			1	%	91,662			1	%
Total fixed maturities, at market value	$	9,158,403		100	%	$	9,994,328		100	%	$	9,623,828		100	%	$	9,477,551		100	%	$	9,600,752		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 December 31, 2010:

			Gross		Gross			Net					Estimated
	Estimated		Unrealized		Unrealized			Unrealized			Amortized		Market Value /
	Market Value		Gains		Losses			Gains (Losses)			Cost		Amortized Cost
Corporates	$	2,295,975	$	79,718	$	(17,530	)	$	62,188		$	2,233,787	102.8	%
Non-U.S. government-backed corporates	426,089		14,597		(813		)	13,784			412,305		103.3	%
FDIC guaranteed corporates	117,280		3,085		—			3,085			114,195		102.7	%
U.S. government and government agencies	872,149		20,150		(5,696		)	14,454			857,695		101.7	%
Agency mortgage-backed securities	1,480,792		11,481		(12,813		)	(1,332		)	1,482,124		99.9	%
Non-agency mortgage-backed securities	326,021		7,320		(14,080		)	(6,760		)	332,781		98.0	%
Agency commercial mortgage-backed securities	359,246		14,021		(725		)	13,296			345,950		103.8	%
Non-agency commercial mortgage-backed securities	808,053		17,722		(5,303		)	12,419			795,634		101.6	%
Municipal bonds	1,182,100		40,410		(6,958		)	33,452			1,148,648		102.9	%
Non-U.S. government securities	732,666		39,539		(11,894		)	27,645			705,021		103.9	%
Asset-backed securities	558,032		20,672		(3,990		)	16,682			541,350		103.1	%
Total	$	9,158,403	$	268,715	$	(79,802	)	$	188,913		$	8,969,490	102.1	%

Corporates (Excluding Guaranteed Amounts)

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

	Estimated Market Value
			% of Asset		% of Investable
	Total		Class		Assets
Sector:
Financials	$	1,153,109	50.2	%	9.7	%
Industrials	812,092		35.4	%	6.9	%
Utilities	100,912		4.4	%	0.9	%
Foreign agencies	40,538		1.8	%	0.3	%
All other (1)	189,324		8.2	%	1.6	%
Total	$	2,295,975	100.0	%	19.4	%
Credit quality distribution (2):
AAA	$	589,589	25.7	%	5.0	%
AA	420,661		18.3	%	3.6	%
A	506,819		22.1	%	4.3	%
BBB	353,750		15.4	%	3.0	%
BB	120,440		5.2	%	1.0	%
B	201,741		8.8	%	1.7	%
Lower than B	9,790		0.4	%	0.1	%
Not rated	93,185		4.1	%	0.8	%
Total	$	2,295,975	100.0	%	19.4	%

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

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

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

	Estimated		% of Asset		% of Investable		Credit
Issuer	Market Value		Class		Assets		Rating (2)
JPMorgan Chase & Co	$	83,798	3.6	%	0.7	%	AA-
General Electric Co	67,090		2.9	%	0.6	%	AA+
Sovrisc BV	40,984		1.8	%	0.3	%	A+
Bank of America Corp	39,615		1.7	%	0.3	%	A+
Wal-Mart Stores Inc.	38,397		1.7	%	0.3	%	AA
Citigroup Inc.	37,001		1.6	%	0.3	%	AA-
Barclays PLC	34,725		1.5	%	0.3	%	AA-
Wells Fargo & Company	28,472		1.2	%	0.2	%	AA-
Royal Dutch Shell PLC	26,233		1.1	%	0.2	%	AA
National Australia Bank Limited	25,541		1.1	%	0.2	%	AA
Total	$	421,856	18.4	%	3.6	%

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 December 31, 2010, excluding amounts guaranteed by the U.S. government:

				Average	Estimated Market Value
	Issuance	Amortized		Credit			% of Amortized		% of Investable
	Year	Cost		Quality	Total		Cost		Assets
Non-agency MBS:	2003	$	2,786	AAA	$	2,777	99.7	%	0.0	%
	2004	18,206		A	17,112		94.0	%	0.1	%
	2005	58,906		BB+	53,852		91.4	%	0.5	%
	2006	45,827		B-	42,963		93.8	%	0.4	%
	2007	54,345		CCC+	52,729		97.0	%	0.4	%
	2008	9,407		CCC	9,002		95.7	%	0.1	%
	2009 (6)	95,938		AAA	100,277		104.5	%	0.8	%
	2010 (6)	47,366		AAA	47,309		99.9	%	0.4	%
Total non-agency MBS		$	332,781	BBB+	$	326,021	98.0	%	2.8	%
Non-agency CMBS:	1998	$	3,611	AAA	$	3,744	103.7	%	0.0	%
	1999	121		AAA	117		96.7	%	0.0	%
	2001	120,595		AAA	119,863		99.4	%	1.0	%
	2002	39,137		AAA	39,696		101.4	%	0.3	%
	2003	62,577		AAA	65,780		105.1	%	0.6	%
	2004	178,333		AAA	183,161		102.7	%	1.5	%
	2005	49,411		AAA	49,680		100.5	%	0.4	%
	2006	8,277		AA+	8,281		100.0	%	0.1	%
	2007	65,515		AA+	71,676		109.4	%	0.6	%
	2009	5,086		AAA	5,346		105.1	%	0.0	%
	2010	262,971		AAA	260,709		99.1	%	2.2	%
Total non-agency CMBS		$	795,634	AAA	$	808,053	101.6	%	6.8	%

	Non-Agency MBS				Non-Agency
Additional Statistics	Re-REMICs		All Other		CMBS (1)
Wtd. average loan age (months)	51		57		67
Wtd. average life (months) (2)	19		55		34
Wtd. average loan-to-value % (3)	71.5	%	66.1	%	66.5	%
Total delinquencies (4)	21.4	%	19.1	%	6.4	%
Current credit support % (5)	41.3	%	11.7	%	28.4	%

(1)Loans defeased with government/agency obligations represented approximately 12% 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 December 31, 2010.  The weighted average life for CMBS reflects the average life of the collateral underlying the Company’s CMBS holdings.

(3)The range of loan-to-values on MBS is 41% to 84%, while the range of loan-to-values on CMBS is 49% to 95%.

(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) December 31, 2010:

			Average	Estimated Market Value
	Amortized		Credit			% of Amortized		% of Investable
	Cost		Quality	Total		Cost		Assets
Sector:
Credit cards (1)	$	242,527	AAA	$	253,456	104.5	%	2.1	%
Autos (2)	128,847		AAA	132,667		103.0	%	1.1	%
Student loans (3)	63,002		AAA	63,895		101.4	%	0.5	%
U.K. securitized (4)	38,150		AAA	38,855		101.8	%	0.3	%
Rate reduction bonds (5)	32,794		AAA	34,523		105.3	%	0.3	%
Other	20,539		AA	20,249		98.6	%	0.2	%
	525,859		AAA	543,645		103.4	%	4.6	%
Home equity (6)	$	4,808	AAA	$	4,424	92.0	%	0.0	%
	56		AA	55		98.2	%	0.0	%
	204		A	203		99.5	%	0.0	%
	8,503		BB to B	7,111		83.6	%	0.1	%
	1,720		CCC to C	2,529		147.0	%	0.0	%
	200		D	65		32.5	%	0.0	%
	15,491		BB+	14,387		92.9	%	0.1	%
Total ABS	$	541,350	AAA	$	558,032	103.1	%	4.7	%

The effective duration of the total ABS was 1.0 years at December 31, 2010.

(1)The average excess spread % on credit cards is 15.4%.

(2)The weighted average credit support % on autos is 38.8%.

(3)The weighted average credit support % on student loans is 37.9%.

(4)The weighted average credit support % on U.K. securitized is 18.2%.

(5)The weighted average credit support % on rate reduction bonds is 20.6%.

(6)The weighted average credit support % on home equity is 23.6%.

The Company’s investment portfolio included $47.1 million par in sub-prime securities at December 31, 2010, with an estimated market value of $19.9 million and an average credit quality of “Baa3/BBB.” Such amounts were primarily in the home equity sector with the balance in other ABS, MBS and CMBS sectors. In addition, the portfolio of collateral backing the Company’s securities lending program contains approximately $13.2 million estimated market value of sub-prime securities with an average credit quality of “B-” from Standard & Poors and “Caa2” 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 December 31, 2010:

	Carrying		% of Asset		% of Investable
	Value		Class		Assets
Investment funds accounted for using the equity method	$	246,292	71.2	%	2.1	%
Corporate bonds, at market value	98,915		28.6	%	0.8	%
Other investments, at market value	648		0.2	%	0.0	%
Total	$	345,855	100.0	%	2.9	%

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

	Carrying		% of Asset		% of Investable
	Value		Class		Assets
U.S.-denominated	$	235,309	68.0	%	2.0	%
Euro-denominated	110,546		32.0	%	0.9	%
Total	$	345,855	100.0	%	2.9	%

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

	Carrying		% of Asset		% of Investable
	Value		Class		Assets
Sector:
Consumer cyclical	$	67,975	19.7	%	0.6	%
Media	65,518		18.9	%	0.6	%
Industrials	49,642		14.4	%	0.4	%
Basic materials	32,641		9.4	%	0.3	%
Utilities	23,890		6.9	%	0.2	%
Consumer non-cyclical	19,090		5.5	%	0.2	%
All other	87,099		25.2	%	0.7	%
Total	$	345,855	100.0	%	2.9	%
Weighted average rating factor (Moody’s)	B2

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 insuranc e 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 dif ferent 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 Compan y 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																											Year Ended
	December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			December 31,			December 31,
	2010			2010			2010			2010			2009			2009			2009			2009			2008 (1)			2010			2009
After-tax operating income available to common shareholders	$	129,489		$	130,672		$	132,182		$	98,731		$	159,431		$	160,332		$	163,041		$	169,001		$	85,934		$	491,074		$	651,805
Net realized gains (losses), net of tax	71,821			68,611			61,119			45,503			88,592			69,190			(11,243		)	(9,111		)	(30,836		)	247,054			137,428
Net impairment losses recognized in earnings, net of tax	(3,230		)	(2,075		)	(4,410		)	(1,606		)	(4,493		)	(4,643		)	(20,786		)	(36,134		)	(75,169		)	(11,321		)	(66,056		)
Equity in net income (loss) of investment funds accounted for using the equity method, net of tax	22,990			9,708			(348		)	29,050			32,391			69,119			75,890			(9,581		)	(174,147		)	61,400			167,819
Net foreign exchange gains (losses), net of tax	6,581			(65,346		)	48,447			38,855			8,775			(19,591		)	(54,773		)	25,694			51,246			28,537			(39,895		)
Net income (loss) available to common shareholders	$	227,651		$	141,570		$	236,990		$	210,533		$	284,696		$	274,407		$	152,129		$	139,869		$	(142,972	)	$	816,744		$	851,101
Diluted per common share results:
After-tax operating income available to common shareholders	$	2.58		$	2.55		$	2.48		$	1.78		$	2.66		$	2.56		$	2.60		$	2.70		$	1.43		$	9.35		$	10.53
Net realized gains (losses), net of tax	1.43			1.34			1.15			0.82			1.48			1.11			(0.18		)	(0.14		)	(0.51		)	4.70			2.22
Net impairment losses recognized in earnings, net of tax	(0.06		)	(0.04		)	(0.08		)	(0.03		)	(0.08		)	(0.08		)	(0.33		)	(0.58		)	(1.25		)	(0.21		)	(1.07		)
Equity in net income (loss) of investment funds accounted for using the equity method, net of tax	0.46			0.19			(0.01		)	0.52			0.54			1.11			1.21			(0.15		)	(2.90		)	1.17			2.71
Net foreign exchange gains (losses), net of tax	0.13			(1.27		)	0.91			0.70			0.15			(0.31		)	(0.87		)	0.41			0.85			0.54			(0.65		)
Net income (loss) available to common shareholders	$	4.54		$	2.77		$	4.45		$	3.79		$	4.75		$	4.39		$	2.43		$	2.24		$	(2.38	)	$	15.55		$	13.74
Weighted average common shares and common share equivalents outstanding — diluted	50,102,143			51,182,009			53,265,303			55,513,827			59,910,667			62,533,816			62,626,317			62,559,969			60,048,258			52,521,719			61,927,132
																									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
	December 31,		September 30,		June 30,		March 31,		December 31,		September 30,		June 30,		March 31,		December 31,		September 30,		June 30,		March 31,		December 31,
	2010		2010		2010		2010		2009		2009		2009		2009		2008		2008		2008		2008		2010
Effect of share repurchases:
Aggregate cost of shares repurchased	258,151		$	53,398	$	269,054	$	181,272	$	358,655	$	98,194	$	0	$	1,552	$	0	$	123,377	$	199,910	$	189,843	$	2,270,471
Shares repurchased	2,893,017		681,065		3,644,227		2,529,913		5,148,271		1,533,247		—		33,305		—		1,865,482		2,871,859		2,749,909		31,719,334
Average price per share repurchased	$	89.23	$	78.40	$	73.83	$	71.65	$	69.67	$	64.04			$	46.60			$	66.14	$	69.61	$	69.04	$	71.58
Average book value per common share (1)	$	89.61	$	85.65	$	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	1.00x		0.92x		0.93x		0.96x		0.98x		0.98x				0.88x				1.20x		1.22x		1.23x
Remaining share repurchase authorization (2)	$	229,529

(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. From January 1 to February 11, 2011, the Company repurchased an additional 1.6 million common shares for an aggregate purchase price of $139.6 million. At February 11, 2011, $89.9 million of repurchases were available under the share repurchase program.

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																											Year Ended
	December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			December 31,			December 31,
	2010			2010			2010			2010			2009			2009			2009			2009			2008			2010			2009
After-tax operating income available to common shareholders	$	129,489		$	130,672		$	132,182		$	98,731		$	159,431		$	160,332		$	163,041		$	169,001		$	85,934		$	491,074		$	651,805
Annualized after-tax operating income available to common shareholders (a)	$	517,956		$	522,688		$	528,728		$	394,924		$	637,724		$	641,328		$	652,164		$	676,004		$	343,736		$	491,074		$	651,805
Beginning common shareholders’ equity	$	4,392,910		$	4,073,003		$	4,053,757		$	3,998,349		$	4,135,822		$	3,704,968		$	3,305,396		$	3,107,965		$	3,191,710		$	3,998,349		$	3,107,965
Ending common shareholders’ equity	4,188,003			4,392,910			4,073,003			4,053,757			3,998,349			4,135,822			3,704,968			3,305,396			3,107,965			4,188,003			3,998,349
Average common shareholders’ equity (b)	$	4,290,457		$	4,232,957		$	4,063,380		$	4,026,053		$	4,067,086		$	3,920,395		$	3,505,182		$	3,206,681		$	3,149,838		$	4,093,176		$	3,553,157
Annualized operating return on average common equity (a)/(b)	12.1		%	12.3		%	13.0		%	9.8		%	15.7		%	16.4		%	18.6		%	21.1		%	10.9		%	12.0		%	18.3		%

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:

	December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,
	2010			2010			2010			2010			2009			2009			2009			2009			2008
Debt:
Senior notes, due May 1, 2034 (7.35%)	$	300,000		$	300,000		$	300,000		$	300,000		$	300,000		$	300,000		$	300,000		$	300,000		$	300,000
Revolving credit agreement borrowings, due August 30, 2011 (variable)	100,000			125,000			125,000			100,000			100,000			100,000			100,000			100,000			100,000
Total debt	$	400,000		$	425,000		$	425,000		$	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)	4,188,003			4,392,910			4,073,003			4,053,757			3,998,349			4,135,822			3,704,968			3,305,396			3,107,965
Total shareholders’ equity	$	4,513,003		$	4,717,910		$	4,398,003		$	4,378,757		$	4,323,349		$	4,460,822		$	4,029,968		$	3,630,396		$	3,432,965
Total capital	$	4,913,003		$	5,142,910		$	4,823,003		$	4,778,757		$	4,723,349		$	4,860,822		$	4,429,968		$	4,030,396		$	3,832,965
TALF non-recourse borrowings, at market value, due between 2012 to 2015 (various) (3)	325,770			331,797			336,213			346,746			217,565			219,843			—			—			—
Total capital and TALF non-recourse borrowings	$	5,238,773		$	5,474,707		$	5,159,216		$	5,125,503		$	4,940,914		$	5,080,665		$	4,429,968		$	4,030,396		$	3,832,965
Common shares outstanding, net of treasury shares (4) (b)	46,544,075			49,225,371			49,630,570			52,709,934			54,761,678			59,524,309			60,980,806			60,532,222			60,511,974
Book value per common share (a)/(b)	$	89.98		$	89.24		$	82.07		$	76.91		$	73.01		$	69.48		$	60.76		$	54.61		$	51.36
Leverage ratios:
Senior notes/total capital	6.1		%	5.8		%	6.2		%	6.3		%	6.4		%	6.2		%	6.8		%	7.4		%	7.8		%
Revolving credit agreement borrowings/total capital	2.0		%	2.4		%	2.6		%	2.1		%	2.1		%	2.1		%	2.3		%	2.5		%	2.6		%
Debt/total capital	8.1		%	8.3		%	8.8		%	8.4		%	8.5		%	8.2		%	9.0		%	9.9		%	10.4		%
Preferred/total capital	6.6		%	6.3		%	6.7		%	6.8		%	6.9		%	6.7		%	7.3		%	8.1		%	8.5		%
Debt and preferred/total capital	14.8		%	14.6		%	15.6		%	15.2		%	15.3		%	14.9		%	16.4		%	18.0		%	18.9		%

(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 hav e been 13.9% and the ratio of debt and preferred to total capital would have been 20.1% at December 31, 2010.
(4)	Excludes the effects of stock options and restricted stock units outstanding.

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