8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 8-K

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

April 25, 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 jurisdiction of incorporation or organization)	(Commission File Number)	(I.R.S. Employer Identification No.)

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

(Address of principal executive offices) (Zip Code)

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

N/A

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

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

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

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

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

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

ITEM 2.02             Results of Operations and Financial Condition.

On April 25, 2011, Arch Capital Group Ltd. (“ACGL”) issued a press release reporting its earnings and the availability of its first quarter financial supplement for the three month period ended March 31, 2011.  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.

ITEM 7.01             Regulation FD Disclosure.

Arch Reinsurance Ltd. (“Arch Re Ltd.”), a subsidiary of ACGL, has been approved by the Florida Office of Insurance Regulation (the “Florida Office”) to become an “Eligible Reinsurer” pursuant to requirements under the Florida Insurance Code.  This status will permit Arch Re Ltd. to post reduced collateral for property catastrophe reinsurance being provided by Arch Re Ltd. to ceding insurers in Florida on and after March 31, 2011.  In the consent order, the Florida Office referred to various factors, such as Arch Re Ltd.’s financial strength and its domiciliary jurisdiction.

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

ITEM 9.01             Exhibits.

EXHIBIT NO.	DESCRIPTION
99.1	Press Release dated April 25, 2011 announcing the earnings of Arch Capital Group Ltd. for the three month period ended March 31, 2011
99.2	First Quarter 2011 Financial Supplement

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SIGNATURES

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

	ARCH CAPITAL GROUP LTD.
Date: April 25, 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 April 25, 2011 announcing the earnings of Arch Capital Group Ltd. for the three month period ended March 31, 2011
99.2	First Quarter 2011 Financial Supplement

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EX-99.1

Exhibit 99.1

ARCH CAPITAL GROUP LTD.

Earnings Release Supplement

As of March 31, 2011

INDEX TO SUPPLEMENT

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

	Wessex House, 5th 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 2011 FIRST QUARTER RESULTS

HAMILTON, BERMUDA, April 25, 2011 — Arch Capital Group Ltd. (NASDAQ: ACGL) reports that net income available to common shareholders for the 2011 first quarter was $19.3 million, or $0.41 per share, compared to $210.5 million, or $3.79 per share, for the 2010 first quarter. The Company also reported after-tax operating income available to common shareholders of $7.9 million, or $0.17 per share, for the 2011 first quarter, compared to $98.7 million, or $1.78 per share, for the 2010 first quarter. All earnings per share amounts discussed in this release are on a diluted basis.

The Company’s book value per common share was $91.02 at March 31, 2011, a 1.2% increase from $89.98 per share at December 31, 2010. The Company’s after-tax operating income available to common shareholders represented a 0.8% annualized return on average common equity for the 2011 first quarter, compared to 9.8% for the 2010 first quarter. After-tax operating income available to common shareholders, a non-GAAP measure, is defined as net income available to common shareholders, excluding net realized gains or losses, net impairment losses recognized in earnings, equity in net income or loss of investment funds accounted for using the equity method and net foreign exchange gains or losses, net of income taxes. See page 7 for a further discussion of after-tax operating income available to common shareholders and Regulation G.

The Company’s 2011 first quarter results included losses for current year catastrophic events of $178.7 million, net of reinsurance and reinstatement premiums, compared to $58.1 million in the 2010 first quarter. The 2011 first quarter amounts recorded for current year catastrophic events, on both a gross and net basis, are detailed in the table below:

	Before Ceded		After Ceded
(U.S. dollars in thousands)	Reinsurance		Reinsurance
Japanese Earthquake and Tsunami:
Property losses	$	86,094	$	63,056
Marine and personal accident losses	16,199		16,199
Total	102,293		79,255
New Zealand Earthquake	85,846		64,940
Australian Floods / Cyclone Yasi	43,847		32,896
Other	1,652		1,652
Total	$	233,638	$	178,743

The Company’s estimates for these catastrophic events 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

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unprecedented nature and scale of the Japanese earthquake and tsunami event, 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 particular, the models used for risks affecting Japan are relatively untested by actual experience and may be subject to even greater variability. In addition, actual losses may increase if the Company’s reinsurers fail to meet their obligations 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
	March 31,
(U.S. dollars in thousands)	2011			2010
Gross premiums written	$	964,566		$	953,687
Net premiums written	764,278			767,754
Net premiums earned	633,695			669,917
Underwriting income (loss)	(63,518		)	23,918
Combined ratio	110.0		%	96.4		%

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

	Three Months Ended
	March 31,
(U.S. dollars in thousands, except share data)	2011			2010
After-tax operating income available to common shareholders	$	7,859		$	98,731
Net realized gains, net of tax	21,585			45,503
Net impairment losses recognized in earnings, net of tax	(2,680		)	(1,606		)
Equity in net income of investment funds accounted for using the equity method, net of tax	29,673			29,050
Net foreign exchange (losses) gains, net of tax	(37,142		)	38,855
Net income available to common shareholders	$	19,295		$	210,533
Diluted per common share results:
After-tax operating income available to common shareholders	$	0.17		$	1.78
Net realized gains, net of tax	0.46			0.82
Net impairment losses recognized in earnings, net of tax	(0.06		)	(0.03		)
Equity in net income of investment funds accounted for using the equity method, net of tax	0.63			0.52
Net foreign exchange (losses) gains, net of tax	(0.79		)	0.70
Net income available to common shareholders	$	0.41		$	3.79

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 2011 first quarter, the combined ratio of the Company’s insurance and reinsurance subsidiaries consisted of a loss ratio of 77.9% and an underwriting expense ratio of 32.1%, compared to a loss ratio of 63.9% and an underwriting expense ratio of 32.5% for the 2010 first quarter.

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In establishing the reserves for losses and loss adjustment expenses, the Company has made various assumptions relating to the pricing of its reinsurance contracts and insurance policies and also has considered available historical industry experience and current industry conditions. Any estimates and assumptions made as part of the reserving process could prove to be inaccurate due to several factors, including the fact that relatively limited historical information has been reported to the Company through March 31, 2011. As actual loss information has been reported, the Company has developed its own loss experience and its reserving methods include other actuarial techniques. Over time, such techniques have been given further weight in its reserving process based on the continuing maturation of the Company’s reserves. 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 2.73 years at March 31, 2011, compared to 2.83 years at December 31, 2010. Including the effects of foreign exchange, total return on the Company’s investment portfolio, calculated on a pre-tax basis and before investment expenses, was approximately 1.50% for the 2011 first quarter, compared to 1.58% for the 2010 first quarter. Excluding the effects of foreign exchange, total return was 1.14% for the 2011 first quarter, compared to 1.98% for the 2010 first quarter.

Net investment income for the 2011 first quarter was $88.3 million, or $1.89 per share, compared to $93.0 million, or $1.67 per share, for the 2010 first quarter. The comparability of net investment income between the 2011 first quarter and 2010 first quarter was influenced by the Company’s share repurchase program described below. In addition, net investment income for the 2011 first quarter included an initial dividend of $5.5 million received on an investment fund included in other investments. Approximately $4.0 million of such distribution is not expected to recur as the fund moves to monthly distributions. The pre-tax investment income yield, adjusted to normalize the dividend income item, was 3.06% for the 2011 first quarter, compared to 3.24% for the 2010 fourth quarter and 3.41% for the 2010 first quarter. The decline in yields reflects lower reinvestment yields and an increased allocation to equities. Consolidated cash flow provided by operating activities for the 2011 first quarter was $224.6 million, compared to $184.6 million for the 2010 first quarter. The increase in operating cash flows in the 2011 first quarter was primarily due to the timing of dividend receipts on other investments and the timing of certain expense payments.

During 2006, the Company invested $50 million in Aeolus LP, which operates as an unrated reinsurance platform that provides collateralized property catastrophe protection to insurers and reinsurers on both an ultimate net loss and industry loss warranty basis. This investment is accounted for using the equity method on a quarter lag basis (based on the availability of their financial statements) with changes in the carrying value recorded in “other income.” As of March 31, 2011, the carrying value of this investment, after taking into account the $57 million in cash distributions received through March 31, 2011, was approximately $54 million, with no unfunded capital commitments. Based upon information currently available to the Company as to the 2011 first quarter catastrophic events, the Company estimates that it will record in its second quarter results a loss in the range of $9 to $12 million with respect to this investment. However, actual losses may vary materially from the estimates due to the inherent uncertainties in making estimates for catastrophic events, as discussed above.

For the 2011 first quarter, the Company’s effective tax rate on income before income taxes was (1.5%), compared to 3.0% for the 2010 first quarter. For the 2011 first quarter, the Company’s effective tax rates on pre-tax operating income was 2.0%, compared to 4.3% for the 2010 first quarter. The Company’s effective tax rates may fluctuate from period to period based on the relative mix of income reported by jurisdiction primarily due to the varying tax rates in each jurisdiction. The Company currently expects that its annual effective tax rate on pre-tax operating income available to common shareholders for the year ended December 31, 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 $2.5 million of federal excise taxes for the 2011 first

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quarter, compared to $3.0 million for the 2010 first quarter. Such amounts are reflected as acquisition expenses in the Company’s consolidated statements of income.

Net foreign exchange losses for the 2011 first quarter were $36.9 million (net unrealized losses of $37.0 million and net realized gains of $0.1 million), compared to net foreign exchange gains for the 2010 first quarter of $38.6 million (net unrealized gains of $37.9 million and net realized gains of $0.7 million). The 2011 first quarter net foreign exchange losses primarily resulted from the weakening of the U.S. Dollar against the Euro, British Pound Sterling and other major foreign currencies during the period.

Net unrealized foreign exchange gains or losses result from the effects of revaluing the Company’s net insurance liabilities required to be settled in foreign currencies at each balance sheet date. Historically, the Company has held investments in foreign currencies which are intended to mitigate its exposure to foreign currency fluctuations in its net insurance liabilities. However, changes in the value of such investments due to foreign currency rate movements are reflected as a direct increase or decrease to shareholders’ equity and are not included in the consolidated statements of income. As a result of the current financial and economic environment as well as the potential for additional investment returns, the Company may not match a portion of its projected liabilities in foreign currencies with investments in the same currencies, which could increase the Company’s exposure to foreign currency fluctuations and increase the volatility of the Company’s shareholders’ equity.

During the 2011 first quarter, the Company repurchased 2.7 million common shares for an aggregate purchase price of $237.2 million under its share repurchase program. Since the inception of the share repurchase program through March 31, 2011, ACGL has repurchased 34.4 million common shares for an aggregate purchase price of $2.51 billion. At March 31, 2011, $992.4 million of repurchases were available under the share repurchase program.

At March 31, 2011, the Company’s capital of $4.73 billion consisted of $300.0 million of senior notes, representing 6.3% of the total, $100.0 million of revolving credit agreement borrowings due in August 2011, representing 2.1% of the total, $325.0 million of preferred shares, representing 6.9% of the total, and common shareholders’ equity of $4.00 billion, representing the balance. 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 $4.2 billion, representing the balance.

The Company will hold a conference call for investors and analysts at 11:00 a.m. Eastern Time on Tuesday, April 26, 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 April 26 at 2:00 p.m. Eastern Time until May 3, 2011 at midnight Eastern Time. To access the replay, domestic callers should dial 888-286-8010 (passcode 92669288), and international callers should dial 617-801-6888 (passcode 92669288).

Please refer to the Company’s Financial Supplement dated March 31, 2011, 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 $4.73 billion in capital at March 31, 2011, provides insurance and reinsurance on a worldwide basis through its wholly owned subsidiaries.

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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 a 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 the deposit method of accounting, which for a relatively new insurance and reinsurance company, like the Company, are even more difficult to make than those made in a mature company since relatively limited historical information has been reported to the Company through March 31, 2011;

·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;

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

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

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

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

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

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

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

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

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

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

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

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Comment on Regulation G

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

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

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

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ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

SUPPLEMENTAL FINANCIAL INFORMATION

BOOK VALUE PER COMMON SHARE

	March 31,			December 31,
(U.S. dollars in thousands, except share data)	2011			2010
Calculation of book value per common share:
Total shareholders’ equity	$	4,325,535		$	4,513,003
Less preferred shareholders’ equity	(325,000		)	(325,000		)
Common shareholders’ equity	$	4,000,535		$	4,188,003
Common shares outstanding, net of treasury shares (1)	43,950,213			46,544,075
Book value per common share	$	91.02		$	89.98

(1)Excludes the effects of 3,980,104 and 4,083,856 stock options and 172,646 and 173,178 restricted stock units outstanding at March 31, 2011 and December 31, 2010, respectively.

SHARE REPURCHASE ACTIVITY

	Three Months Ended					Cumulative
	March 31,					March 31,
(U.S. dollars in thousands, except share data)	2011			2010		2011
Effect of share repurchases:
Aggregate cost of shares repurchased	$	237,173		$	181,272	$	2,507,644
Shares repurchased	2,687,461			2,529,913		34,406,795
Average price per share repurchased	$	88.25		$	71.65	$	72.88
Estimated net (dilutive) accretive impact on diluted earnings per share (1)	$	(0.17	)	$	0.36
Estimated net accretive impact on ending book value per common share (2)						$	7.96

(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 estimated impact of cumulative share repurchases on diluted earnings per share was dilutive in the 2011 first quarter and accretive in the 2010 first quarter.

(2)

As the cumulative average price per share of shares repurchased through March 31, 2011 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
	March 31,
(U.S. dollars in thousands, except share data)	2011			2010
Components of net investment income:
Fixed maturities	$	85,144		$	97,661
Equity securities	1,547			210
Short-term investments	678			230
Other (1)	7,054			275
Gross investment income	94,423			98,376
Investment expenses	(6,116		)	(5,404		)
Net investment income	$	88,307		$	92,972
Per share	$	1.89		$	1.67
Investment income yield, at amortized cost (2):
Pre-tax	3.06		%	3.41		%
After-tax	2.94		%	3.30		%
Cash flow from operations	$	224,580		$	184,623

(1)	The 2011 first quarter amount includes an initial dividend of $5.5 million received on an investment fund.
(2)	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.

	March 31,			December 31,
(U.S. dollars in thousands)	2011			2010
Investable assets:
Fixed maturities available for sale, at market value	$	9,033,408		$	9,082,828
Fixed maturities pledged under securities lending agreements, at market value (1)	161,888			75,575
Total fixed maturities	9,195,296			9,158,403
Short-term investments available for sale, at market value	1,130,142			915,841
Short-term investments pledged under securities lending agreements, at market value (1)	36,530			—
Cash	406,877			362,740
TALF investments, at market value (2)	400,970			402,449
Equity securities available for sale, at market value	419,893			363,255
Other investments:
Fixed income investment funds	335,293			266,267
Other	50,834			83,005
Investment funds accounted for using the equity method (3)	395,258			434,600
Securities transactions entered into but not settled at the balance sheet date	(516,682		)	(144,047		)
Total investable assets (1)	$	11,854,411		$	11,842,513
Investment portfolio statistics (1):
Average effective duration (in years)	2.73			2.83
Average credit quality	AA+			AA+
Imbedded book yield (before investment expenses)	3.36		%	3.52		%

(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
	March 31,
(U.S. dollars in thousands)	2011			2010
Components of losses and loss adjustment expenses incurred
Paid losses and loss adjustment expenses	$	338,250		$	336,662
Increase in unpaid losses and loss adjustment expenses	155,630			91,389
Total losses and loss adjustment expenses	$	493,880		$	428,051
Estimated net (favorable) adverse development in prior year loss reserves, net of related adjustments
Net impact on underwriting results:
Insurance	$	(15,552	)	$	6,406
Reinsurance	(42,889		)	(36,097		)
Total	$	(58,441	)	$	(29,691	)
Impact on losses and loss adjustment expenses:
Insurance	$	(15,369	)	$	3,830
Reinsurance	(43,357		)	(36,504		)
Total	$	(58,726	)	$	(32,674	)
Impact on acquisition expenses:
Insurance	$	(183	)	$	2,576
Reinsurance	468			407
Total	$	285		$	2,983
Impact on combined ratio:
Insurance	(3.8		)%	1.5		%
Reinsurance	(19.0		)%	(15.0		)%
Total	(9.2		)%	(4.4		)%
Impact on loss ratio:
Insurance	(3.8		)%	0.9		%
Reinsurance	(19.2		)%	(15.2		)%
Total	(9.3		)%	(4.9		)%
Impact on acquisition expense ratio:
Insurance	0.0		%	0.6		%
Reinsurance	0.2		%	0.2		%
Total	0.1		%	0.5		%
Estimated net losses incurred from current accident year catastrophic events (1)
Insurance	$	41,206		$	23,962
Reinsurance	137,537			34,133
Total	$	178,743		$	58,095
Impact on combined ratio:
Insurance	10.1		%	5.6		%
Reinsurance	60.8		%	14.2		%
Total	28.2		%	8.7		%

(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 — QUARTERLY RESULTS

For additional details regarding the Company’s operating segments, please refer to the Company’s Financial Supplement dated March 31, 2011 on the Company’s website at http://www.archcapgroup.bm/EarningsReleases.aspx.

INSURANCE SEGMENT

	Three Months Ended
	March 31,
(U.S. dollars in thousands)	2011			2010
Gross premiums written	$	634,583		$	633,576
Net premiums written	449,291			452,924
Net premiums earned	407,591			429,477
Underwriting loss	(25,506		)	(29,932		)
Loss ratio	73.0		%	72.6		%
Acquisition expense ratio	14.9		%	15.5		%
Other operating expense ratio	18.3		%	18.8		%
Combined ratio	106.2		%	106.9		%
Catastrophic activity and prior year development:
Current accident year catastrophic events	10.1		%	5.6		%
Net (favorable) adverse development in prior year loss reserves, net of related adjustments	(3.8		)%	1.5		%
Combined ratio excluding such items	99.9		%	99.8		%

Gross premiums written by the insurance segment in the 2011 first quarter were 0.2% higher than in the 2010 first quarter with increases in casualty lines, professional liability and alternative markets business substantially offset by reductions in commercial aviation and executive assurance lines of business. The higher level in casualty lines primarily reflected new business written in national accounts casualty and in new casualty business written by the insurance segment’s Canadian operations. In addition, growth in alternative markets business (included in “other”) reflected new business and growth in existing accounts. The reduction in commercial aviation business resulted from a strategic decision to exit the business while the changes in professional liability and executive assurance business were primarily due to market conditions. Net premiums written were 0.8% lower than in the 2010 first 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 2011 first quarter were 5.1% lower than in the 2010 first quarter, and reflect changes in net premiums written over the previous five quarters.

The 2011 first quarter loss ratio reflected 10.1 points for current year catastrophic event activity, including 6.1 points recorded for the Japanese earthquake and tsunami, 3.1 points related to the New Zealand earthquake and 0.9 points related to the Australian floods, while the 2010 first quarter included 5.6 points of catastrophic activity, primarily from the Chilean earthquake. Estimated net favorable development, before related adjustments, reduced the loss ratio by 3.8 points in the 2011 first quarter, compared to 0.9 points in the 2010 first quarter. The estimated net favorable development in the 2011 first quarter primarily resulted from better than expected claims emergence in property and other short-tail lines.

The underwriting expense ratio was 33.2% in the 2011 first quarter, compared to 34.3% in the 2010 first quarter. The acquisition expense ratio was 14.9% in the 2011 first quarter, compared to 15.5% in the 2010 first quarter. The 2011 first quarter acquisition expense ratio included 0.2 points of contingent commission expense, compared to 1.1 points in the 2010 first quarter. The operating expense ratio was 18.3% in the 2011 first quarter, compared to 18.8% in the 2010 first quarter. The 2011 first quarter operating expense ratio reflected the lower level of net premiums earned than in the 2010 first quarter, while the 2010 first quarter ratio included certain expense items that did not recur in the 2011 first quarter.

11

REINSURANCE SEGMENT

	Three Months Ended
	March 31,
(U.S. dollars in thousands)	2011			2010
Gross premiums written	$	331,013		$	323,477
Net premiums written	314,987			314,830
Net premiums earned	226,104			240,440
Underwriting income (loss)	(38,012		)	53,850
Loss ratio	86.8		%	48.3		%
Acquisition expense ratio	20.9		%	20.9		%
Other operating expense ratio	9.1		%	8.5		%
Combined ratio	116.8		%	77.7		%
Catastrophic activity and prior year development:
Current accident year catastrophic events	60.8		%	14.2		%
Net favorable development in prior year loss reserves, net of related adjustments	(19.0		)%	(15.0		)%
Combined ratio excluding such items	75.0		%	78.5		%

Gross premiums written by the reinsurance segment in the 2011 first quarter were 2.3% higher than in the 2010 first quarter, primarily due to new business and share increases in other specialty, casualty and facultative property lines, partially offset by a lower level of property catastrophe and other property business. The lower level of property catastrophe business was primarily due to a two year treaty of $18.2 million written in the 2010 first quarter with no corresponding premium in the 2011 first quarter, while the lower level of other property business resulted from share decreases and market conditions. Net premiums written by the reinsurance segment in the 2011 first quarter were substantially unchanged from the 2010 first quarter and net premiums earned in the 2011 first quarter were 6.0% lower than in the 2010 first quarter, reflecting changes in net premiums written over the previous five quarters, including the mix and type of business written.

The 2011 first quarter loss ratio reflected 60.8 points for current year catastrophic event activity, including 24.0 points recorded for the Japanese earthquake and tsunami, 23.1 points related to the New Zealand earthquake and 13.0 points related to the Australian floods, while the 2010 first quarter included 14.2 points of catastrophic activity, primarily from the Chilean earthquake. Estimated net favorable development, before related adjustments, reduced the loss ratio by 19.2 points in the 2011 first quarter, compared to 15.2 points in the 2010 first quarter. The estimated net favorable development in the 2011 first quarter included better than expected claims emergence from property catastrophe business and from casualty business from the 2002 to 2005 underwriting years. The 2011 first 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 2010 first quarter. Generally, short-tail and excess of loss contracts are written at lower loss ratios.

The underwriting expense ratio was 30.0% in the 2011 first quarter, compared to 29.4% in the 2010 first quarter. The acquisition expense ratio for the 2011 first quarter was 20.9%, compared to 20.9% for the 2010 first quarter. The comparison of the 2011 first quarter and 2010 first quarter acquisition expense ratios is influenced by, among other things, the mix and type of business written and earned and the level of ceding commission income. The operating expense ratio was 9.1% in the 2011 first quarter, compared to 8.5% in the 2010 first quarter. The higher other operating expense ratio in the 2011 first quarter was primarily due to the lower level of net premiums earned and changes in the mix of business.

12

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

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

	(Unaudited)
	Three Months Ended
	March 31,
	2011			2010
Revenues
Net premiums written	$	764,278		$	767,754
Change in unearned premiums	(130,583		)	(97,837		)
Net premiums earned	633,695			669,917
Net investment income	88,307			92,972
Net realized gains	20,695			47,782
Other-than-temporary impairment losses	(3,258		)	(2,336		)
Less investment impairments recognized in other comprehensive income, before taxes	578			730
Net impairment losses recognized in earnings	(2,680		)	(1,606		)
Fee income	815			794
Equity in net income of investment funds accounted for using the equity method	29,673			29,050
Other income	4,567			5,978
Total revenues	775,072			844,887
Expenses
Losses and loss adjustment expenses	493,880			428,051
Acquisition expenses	108,754			117,624
Other operating expenses	102,420			106,806
Interest expense	7,721			7,260
Net foreign exchange losses (gains)	36,912			(38,601		)
Total expenses	749,687			621,140
Income before income taxes	25,385			223,747
Income tax (benefit) expense	(371		)	6,753
Net Income	25,756			216,994
Preferred dividends	6,461			6,461
Net income available to common shareholders	$	19,295		$	210,533
Net income per common share
Basic	$	0.43		$	3.97
Diluted	$	0.41		$	3.79
Weighted average common shares and common share equivalents outstanding
Basic	44,499,747			53,039,026
Diluted	46,820,172			55,513,827

13

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

	(Unaudited)
	March 31,			December 31,
	2011			2010
Assets
Investments:
Fixed maturities available for sale, at market value (amortized cost: $8,842,786 and $8,896,957)	$	9,033,408		$	9,082,828
Short-term investments available for sale, at market value (amortized cost: $1,124,397 and $913,488)	1,130,142			915,841
Investment of funds received under securities lending agreements, at market value (amortized cost: $9,547 and $69,682)	9,951			69,660
TALF investments, at market value (amortized cost: $386,068 and $389,200)	400,970			402,449
Equity securities available for sale, at market value (cost: $393,645 and $346,019)	419,893			363,255
Other investments (cost: $362,020 and $326,324)	386,127			349,272
Investment funds accounted for using the equity method	395,258			434,600
Total investments	11,775,749			11,617,905
Cash	406,877			362,740
Accrued investment income	69,057			74,837
Investment in joint venture (cost: $100,000)	105,495			105,698
Fixed maturities and short-term investments pledged under securities lending agreements, at market value	198,418			75,575
Securities purchased under agreements to resell using funds received under securities lending agreements	185,176			—
Premiums receivable	633,144			503,434
Unpaid losses and loss adjustment expenses recoverable	1,720,677			1,703,201
Paid losses and loss adjustment expenses recoverable	51,453			60,784
Prepaid reinsurance premiums	259,624			263,448
Deferred acquisition costs, net	302,271			277,861
Receivable for securities sold	749,708			56,145
Other assets	734,317			669,164
Total Assets	$	17,191,966		$	15,770,792
Liabilities
Reserve for losses and loss adjustment expenses	$	8,319,324		$	8,098,454
Unearned premiums	1,504,162			1,370,075
Reinsurance balances payable	131,512			132,452
Senior notes	300,000			300,000
Revolving credit agreement borrowings	100,000			100,000
TALF borrowings, at market value (par: $322,514 and $326,219)	322,222			325,770
Securities lending payable	203,925			78,021
Payable for securities purchased	1,266,390			200,192
Other liabilities	718,896			652,825
Total Liabilities	12,866,431			11,257,789
Commitments and Contingencies
Shareholders’ Equity
Non-cumulative preferred shares - Series A and B	325,000			325,000
Common shares ($0.01 par, shares issued: 53,454,505 and 53,357,872)	535			534
Additional paid-in capital	120,109			110,325
Retained earnings	4,441,848			4,422,553
Accumulated other comprehensive income, net of deferred income tax	225,405			204,503
Common shares held in treasury, at cost (shares: 9,504,292 and 6,813,797)	(787,362		)	(549,912		)
Total Shareholders’ Equity	4,325,535			4,513,003
Total Liabilities and Shareholders’ Equity	$	17,191,966		$	15,770,792

14

EX-99.2

Exhibit 99.2

Wessex House, 5th Floor 45 Reid Street Hamilton HM 12  Bermuda 441-278-9250 441-278-9255 fax Contact: John C.R. Hele Executive Vice President and Chief Financial Officer

Financial Supplement

Financial Information

as of March 31, 2011

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

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

Arch Capital Group Ltd. and Subsidiaries

Table of Contents

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

Arch Capital Group Ltd. and Subsidiaries

Cautionary Note Regarding Forward-Looking Statements

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

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

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

Arch Capital Group Ltd. and Subsidiaries

Financial Highlights

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

	Three Months Ended March 31,
	2011			2010			Change
Gross premiums written	$	964,566		$	953,687		1.1	%
Net premiums written	$	764,278		$	767,754		(0.5	)%
Net premiums earned	$	633,695		$	669,917		(5.4	)%
Underwriting income (loss)	$	(63,518	)	$	23,918		(365.6	)%
Net investment income	$	88,307		$	92,972		(5.0	)%
Per diluted share	$	1.89		$	1.67		13.2	%
Net income available to common shareholders	$	19,295		$	210,533		(90.8	)%
Per diluted share	$	0.41		$	3.79		(89.2	)%
After-tax operating income available to common shareholders (1)	$	7,859		$	98,731		(92.0	)%
Per diluted share	$	0.17		$	1.78		(90.4	)%
Comprehensive income	$	46,658		$	219,430		(78.7	)%
Cash flow from operations	$	224,580		$	184,623		21.6	%
Diluted weighted average common shares and common share equivalents outstanding	46,820,172			55,513,827			(15.7	)%
Underwriting ratios:
Loss ratio	77.9		%	63.9		%	14.0	%
Acquisition expense ratio	17.0		%	17.4		%	(0.4	)%
Other operating expense ratio	15.1		%	15.1		%	0.0	%
Combined ratio	110.0		%	96.4		%	13.6	%
Financial measures:
Growth in book value per common share	1.2		%	5.3		%	(78.2	)%
Annualized operating return on average common equity	0.8		%	9.8		%	(91.8	)%
Total return on investments (2)	1.50		%	1.58		%	-8	bps

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

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

1

Arch Capital Group Ltd. and Subsidiaries

Consolidated Statements of Income

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

	Three Months Ended
	March 31, 2011			December 31, 2010			September 30, 2010			June 30, 2010			March 31, 2010			December 31, 2009			September 30, 2009			June 30, 2009			March 31, 2009
Gross premiums written	$	964,566		$	664,212		$	831,788		$	817,100		$	953,687		$	718,712		$	937,328		$	911,920		1,024,971
Net premiums written	764,278			482,911			636,117			624,258			767,754			519,087			727,308			693,854			822,863
Net premiums earned	$	633,695		$	632,146		$	627,409		$	623,011		$	669,917		$	708,538		$	734,385		$	699,258		$	700,564
Fee income	815			2,814			874			883			794			894			826			817			925
Losses and loss adjustment expenses	(493,880		)	(367,326		)	(359,193		)	(363,145		)	(428,051		)	(410,360		)	(444,914		)	(398,858		)	(400,542		)
Acquisition expenses, net	(108,754		)	(104,824		)	(111,279		)	(107,475		)	(117,624		)	(120,549		)	(122,739		)	(123,814		)	(126,458		)
Other operating expenses	(95,394		)	(114,454		)	(97,325		)	(91,030		)	(101,118		)	(99,305		)	(93,723		)	(87,779		)	(81,100		)
Underwriting income (loss)	(63,518		)	48,356			60,486			62,244			23,918			79,218			73,835			89,624			93,389
Net investment income	88,307			90,601			90,768			90,537			92,972			93,551			100,213			100,485			95,882
Net realized gains (losses)	20,695			74,027			68,828			62,114			47,782			89,901			70,638			(11,793		)	(5,164		)
Net impairment losses recognized in earnings	(2,680		)	(3,230		)	(2,075		)	(4,410		)	(1,606		)	(4,493		)	(4,643		)	(20,863		)	(36,134		)
Equity in net income (loss) of investment funds accounted for using the equity method	29,673			22,990			9,708			(348		)	29,050			32,391			69,119			75,890			(9,581		)
Other income	4,567			6,165			1,840			4,528			5,978			5,428			5,687			4,950			3,951
Other expenses	(7,026		)	(6,881		)	(5,796		)	(10,503		)	(5,688		)	(6,680		)	(6,020		)	(11,515		)	(6,016		)
Interest expense	(7,721		)	(7,460		)	(7,371		)	(7,916		)	(7,260		)	(7,015		)	(6,001		)	(5,712		)	(5,712		)
Net foreign exchange (losses) gains	(36,912		)	6,039			(65,157		)	48,625			38,601			9,051			(19,755		)	(53,658		)	25,205
Income before income taxes	25,385			230,607			151,231			244,871			223,747			291,352			283,073			167,408			155,820
Income tax benefit (expense)	371			3,505			(3,200		)	(1,420		)	(6,753		)	(195		)	(2,205		)	(8,818		)	(9,490		)
Net income	25,756			234,112			148,031			243,451			216,994			291,157			280,868			158,590			146,330
Preferred dividends	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)
Net income available to common shareholders	$	19,295		$	227,651		$	141,570		$	236,990		$	210,533		$	284,696		$	274,407		$	152,129		$	139,869
Underwriting Ratios
Loss ratio	77.9		%	58.1		%	57.3		%	58.3		%	63.9		%	57.9		%	60.6		%	57.0		%	57.2		%
Acquisition expense ratio	17.0		%	16.5		%	17.6		%	17.1		%	17.4		%	16.9		%	16.6		%	17.6		%	17.9		%
Other operating expense ratio	15.1		%	18.1		%	15.5		%	14.6		%	15.1		%	14.0		%	12.8		%	12.6		%	11.6		%
Combined ratio	110.0		%	92.7		%	90.4		%	90.0		%	96.4		%	88.8		%	90.0		%	87.2		%	86.7		%
Net premiums written to gross premiums written	79.2		%	72.7		%	76.5		%	76.4		%	80.5		%	72.2		%	77.6		%	76.1		%	80.3		%
Net income per common share
Basic	$	0.43		$	4.77		$	2.89		$	4.65		$	3.97		$	4.96		$	4.56		$	2.52		$	2.32
Diluted	$	0.41		$	4.54		$	2.77		$	4.45		$	3.79		$	4.75		$	4.39		$	2.43		$	2.24
Weighted average common shares and common share equivalents outstanding
Basic	44,499,747			47,773,382			48,997,791			50,987,540			53,039,026			57,379,974			60,156,219			60,417,391			60,313,550
Diluted	46,820,172			50,102,143			51,182,009			53,265,303			55,513,827			59,910,667			62,533,816			62,626,317			62,559,969

2

Arch Capital Group Ltd. and Subsidiaries

Consolidated Balance Sheets

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

	March 31, 2011			December 31, 2010			September 30, 2010			June 30, 2010			March 31, 2010		December 31, 2009		September 30, 2009		June 30, 2009			March 31, 2009
Assets
Investments:
Fixed maturities available for sale, at market value	9,033,408			9,082,828			$	9,810,102		$	9,428,456		$	9,295,680	$	9,391,926	$	9,265,961	$	8,944,110		$	8,540,653
Short-term investments available for sale, at market value	1,130,142			915,841			780,671			554,304			669,798		571,489		706,157		660,859			749,708
Investment of funds received under securities lending agreements, at market value (1)	9,951			69,660			200,020			209,635			177,954		91,160		252,500		309,000			378,071
TALF investments, at market value (2)	400,970			402,449			410,881			407,469			406,997		250,265		250,517		—			—
Equity securities available for sale, at market value	419,893			363,255			120,604			62,788			76,333		36,623		31,958		—			—
Other investments	386,127			349,272			297,807			277,810			187,275		135,549		122,568		115,260			104,988
Investment funds accounted for using the equity method	395,258			434,600			432,418			408,402			405,584		391,869		376,381		370,165			293,452
Total investments	11,775,749			11,617,905			12,052,503			11,348,864			11,219,621		10,868,881		11,006,042		10,399,394			10,066,872
Cash	406,877			362,740			365,997			341,469			338,708		334,571		385,149		336,693			244,037
Accrued investment income	69,057			74,837			79,180			72,102			74,214		70,673		77,762		70,854			65,365
Investment in joint venture	105,495			105,698			104,347			103,540			102,946		102,855		101,473		100,656			101,143
Fixed maturities and short-term investments pledged under securities lending agreements, at market value	198,418			75,575			203,221			214,564			184,221		212,820		609,334		559,385			559,691
Securities purchased under agreements to resell using funds received under securities lending agreements (1)	185,176			—			—			—			—		115,839		358,996		247,473			172,750
Premiums receivable	633,144			503,434			662,634			706,503			699,385		595,030		697,806		735,969			720,724
Unpaid losses and loss adjustment expenses recoverable	1,720,677			1,703,201			1,654,900			1,673,911			1,643,573		1,659,500		1,709,756		1,740,248			1,710,781
Paid losses and loss adjustment expenses recoverable	51,453			60,784			60,222			47,148			67,734		60,770		58,588		53,432			76,312
Prepaid reinsurance premiums	259,624			263,448			267,240			256,952			250,841		277,985		283,290		283,488			274,578
Deferred acquisition costs, net	302,271			277,861			297,250			293,982			298,371		280,372		303,826		307,896			313,973
Receivable for securities sold	749,708			56,145			1,329,508			1,084,122			1,427,085		187,171		998,431		1,192,659			1,191,896
Other assets	734,317			669,164			624,395			634,242			628,407		609,323		592,701		613,788			594,165
Total Assets	$	17,191,966		$	15,770,792		$	17,701,397		$	16,777,399		$	16,935,106	$	15,375,790	$	17,183,154	$	16,641,935		$	16,092,287
Liabilities
Reserve for losses and loss adjustment expenses	8,319,324			8,098,454			8,054,677			7,940,104			$	7,898,162	$	7,873,412	$	7,879,586	$	7,809,034		$	7,709,317
Unearned premiums	1,504,162			1,370,075			1,524,100			1,492,550			1,495,265		1,433,331		1,627,519		1,632,989			1,617,431
Reinsurance balances payable	131,512			132,452			130,274			128,723			114,254		156,500		159,898		158,974			146,981
Senior notes	300,000			300,000			300,000			300,000			300,000		300,000		300,000		300,000			300,000
Revolving credit agreement borrowings	100,000			100,000			125,000			125,000			100,000		100,000		100,000		100,000			100,000
TALF borrowings, at market value (2)	322,222			325,770			331,797			336,213			346,746		217,565		219,843		—			—
Securities lending payable	203,925			78,021			209,411			219,796			189,024		219,116		625,706		574,014			574,337
Payable for securities purchased	1,266,390			200,192			1,649,462			1,192,181			1,429,529		136,381		1,197,411		1,432,395			1,433,732
Other liabilities	718,896			652,825			658,766			644,829			683,369		616,136		612,369		604,561			580,093
Total Liabilities	12,866,431			11,257,789			12,983,487			12,379,396			12,556,349		11,052,441		12,722,332		12,611,967			12,461,891
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	535			534			531			529			527		548		595		610			605
Additional paid-in capital	120,109			110,325			100,640			83,828			95,926		253,466		592,334		681,445			671,547
Retained earnings	4,441,848			4,422,553			4,194,902			4,053,332			3,816,342		3,605,809		3,321,113		3,046,706			2,894,577
Accumulated other comprehensive income (loss), net of deferred income tax	225,405			204,503			388,370			173,231			140,962		138,526		221,780		(23,793		)	(261,333		)
Common shares held in treasury, at cost	(787,362		)	(549,912		)	(291,533		)	(237,917		)	—		—		—		—			—
Total Shareholders’ Equity	4,325,535			4,513,003			4,717,910			4,398,003			4,378,757		4,323,349		4,460,822		4,029,968			3,630,396
Total Liabilities and Shareholders’ Equity	$	17,191,966		$	15,770,792		$	17,701,397		$	16,777,399		$	16,935,106	$	15,375,790	$	17,183,154	$	16,641,935		$	16,092,287
Common shares outstanding, net of treasury shares (3)	43,950,213			46,544,075			49,225,371			49,630,570			52,709,934		54,761,678		59,524,309		60,980,806			60,532,222
Book value per common share	$	91.02		$	89.98		$	89.24		$	82.07		$	76.91	$	73.01	$	69.48	$	60.76		$	54.61

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

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

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

3

Arch Capital Group Ltd. and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

(U.S. dollars in thousands)

	Three Months Ended
	March 31, 2011			December 31, 2010			September 30, 2010			June 30, 2010			March 31, 2010			December 31, 2009			September 30, 2009			June 30, 2009			March 31, 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
Common Shares
Balance at beginning of period	534			531			529			527			548			595			610			605			605
Common shares issued, net	1			3			2			7			4			4			1			5			0
Purchases of common shares under share repurchase program	—			—			—			(5		)	(25		)	(51		)	(16		)	(0		)	(0		)
Balance at end of period	535			534			531			529			527			548			595			610			605
Additional Paid-in Capital
Balance at beginning of period	110,325			100,640			83,828			95,926			253,466			592,334			681,445			671,547			669,715
Common shares issued	8			1,334			283			3,275			14			1,173			0			2,557			0
Exercise of stock options	4,127			2,716			10,486			7,964			16,700			12,380			2,905			705			528
Common shares retired	—			—			—			(36,212		)	(181,350		)	(358,611		)	(98,632		)	(2,483		)	(3,760		)
Amortization of share-based compensation	5,628			5,615			6,074			12,280			7,096			6,199			6,576			9,949			4,318
Other	21			20			(31		)	595			—			(9		)	40			(830		)	746
Balance at end of period	120,109			110,325			100,640			83,828			95,926			253,466			592,334			681,445			671,547
Retained Earnings
Balance at beginning 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
Cumulative effect of change in accounting principle (1)	—			—			—			—			—			—			—			—			61,469
Balance at beginning of period, as adjusted	4,422,553			4,194,902			4,053,332			3,816,342			3,605,809			3,321,113			3,046,706			2,894,577			2,754,708
Dividends declared on preferred shares	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)
Net income	25,756			234,112			148,031			243,451			216,994			291,157			280,868			158,590			146,330
Balance at end of period	4,441,848			4,422,553			4,194,902			4,053,332			3,816,342			3,605,809			3,321,113			3,046,706			2,894,577
Accumulated Other Comprehensive Income (Loss)
Balance at beginning of period	204,503			388,370			173,231			140,962			138,526			221,780			(23,793		)	(261,333		)	(255,594		)
Cumulative effect of change in accounting principle (1)	—			—			—			—			—			—			—			—			(61,469		)
Balance at beginning of period, as adjusted	204,503			388,370			173,231			140,962			138,526			221,780			(23,793		)	(261,333		)	(317,063		)
Change in unrealized appreciation (decline) in value of investments, net of deferred income tax	20,194			(185,221		)	208,310			38,476			5,240			(83,840		)	248,581			241,588			119,277
Portion of other-than-temporary impairment losses recognized in other comprehensive income, net of deferred income tax	(578		)	(111		)	(603		)	(308		)	(730		)	(353		)	(3,217		)	(16,518		)	(61,288		)
Foreign currency translation adjustments, net of deferred income tax	1,286			1,465			7,432			(5,899		)	(2,074		)	939			209			12,470			(2,259		)
Balance at end of period	225,405			204,503			388,370			173,231			140,962			138,526			221,780			(23,793		)	(261,333		)
Common Shares Held in Treasury, at Cost
Balance at beginning of period	(549,912		)	(291,533		)	(237,917		)	—			—			—			—			—			—
Shares repurchased for treasury	(237,450		)	(258,379		)	(53,616		)	(237,917		)	—			—			—			—			—
Balance at end of period	(787,362		)	(549,912		)	(291,533		)	(237,917		)	—			—			—			—			—
Total Shareholders’ Equity	$	4,325,535		$	4,513,003		$	4,717,910		$	4,398,003		$	4,378,757		$	4,323,349		$	4,460,822		$	4,029,968		$	3,630,396

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

4

Arch Capital Group Ltd. and Subsidiaries

Consolidated Statements of Comprehensive Income

(U.S. dollars in thousands)

	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
	2011			2010			2010			2010			2010			2009			2009			2009			2009
Comprehensive Income
Net income	$	25,756		$	234,112		$	148,031		$	243,451		$	216,994		$	291,157		$	280,868		$	158,590		$	146,330
Other comprehensive income (loss), net of deferred income tax
Unrealized holding gains (losses) arising during period	40,370			(141,807		)	264,609			71,087			42,847			(8,954		)	300,733			219,648			62,757
Portion of other-than-temporary impairment losses recognized in other comprehensive income, net of deferred income tax	(578		)	(111		)	(603		)	(308		)	(730		)	(353		)	(3,217		)	(16,518		)	(61,288		)
Reclassification of net realized (gains) losses, net of income taxes, included in net income	(20,176		)	(43,414		)	(56,299		)	(32,611		)	(37,607		)	(74,886		)	(52,152		)	21,940			56,520
Foreign currency translation adjustments	1,286			1,465			7,432			(5,899		)	(2,074		)	939			209			12,470			(2,259		)
Other comprehensive income (loss)	20,902			(183,867		)	215,139			32,269			2,436			(83,254		)	245,573			237,540			55,730
Comprehensive Income	$	46,658		$	50,245		$	363,170		$	275,720		$	219,430		$	207,903		$	526,441		$	396,130		$	202,060

5

Arch Capital Group Ltd. and Subsidiaries

Consolidated Statements of Cash Flows

(U.S. dollars in thousands)

	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
	2011			2010			2010			2010			2010			2009			2009			2009			2009
Operating Activities
Net income	$	25,756		$	234,112		$	148,031		$	243,451		$	216,994		$	291,157		$	280,868		$	158,590		$	146,330
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized (gains) losses	(22,481		)	(78,261		)	(72,534		)	(62,406		)	(49,483		)	(70,680		)	(70,612		)	11,831			5,620
Net impairment losses included in earnings	2,680			3,230			2,075			4,410			1,606			4,493			4,643			20,863			36,134
Equity in net (income) loss of investment funds accounted for using the equity method and other income	(355		)	(26,110		)	(11,545		)	(3,368		)	(15,012		)	(37,819		)	(74,985		)	(80,662		)	10,428
Share-based compensation	5,628			5,615			6,074			12,280			7,096			6,199			6,576			9,949			4,318
Changes in:
Reserve for losses and loss adjustment expenses, net of unpaid losses and loss adjustment expenses recoverable	155,477			3,546			49,420			71,357			91,247			50,992			79,701			5,151			83,763
Unearned premiums, net of prepaid reinsurance premiums	130,136			(149,242		)	9,024			236			96,645			(188,951		)	(6,983		)	(4,775		)	120,867
Premiums receivable	(118,688		)	157,034			63,197			(20,280		)	(116,571		)	99,023			41,108			(916		)	(94,777		)
Deferred acquisition costs, net	(22,518		)	18,910			47			2,038			(19,655		)	23,636			4,356			8,513			(18,933		)
Reinsurance balances payable	(7,122		)	3,277			(4,853		)	19,267			(36,669		)	(1,467		)	(85		)	6,187			11,278
Other liabilities	33,366			(47,339		)	23,914			(57,219		)	41,448			(26,439		)	(5,849		)	5,189			2,802
Other items, net	42,701			19,741			54,574			(4,252		)	(33,023		)	33,839			31,381			83,822			(13,027		)
Net Cash Provided By Operating Activities	224,580			144,513			267,424			205,514			184,623			183,983			290,119			223,742			294,803
Investing Activities
Purchases of:
Fixed maturity investments	(3,250,938		)	(2,434,319		)	(5,018,619		)	(4,885,606		)	(4,597,713		)	(5,221,819		)	(6,675,195		)	(6,336,120		)	(3,037,132		)
Equity securities	(89,790		)	(226,677		)	(65,155		)	(21,727		)	(52,283		)	(35,470		)	(34,532		)	—			—
Other investments	(92,777		)	(147,127		)	(92,955		)	(150,631		)	(132,819		)	(184,598		)	(8,528		)	(9,681		)	(22,670		)
Proceeds from the sales of:
Fixed maturity investments	3,376,248			2,670,332			4,872,668			4,668,666			4,443,108			5,054,102			6,066,081			5,875,303			2,782,462
Equity securities	52,316			14,522			19,151			25,043			11,725			35,097			3,239			—			—
Other investments	84,920			133,211			68,843			87,536			89,510			200,912			79,378			(4,233		)	24,027
Proceeds from redemptions and maturities of fixed maturities	253,898			266,044			226,889			244,312			212,625			146,480			261,604			208,276			168,758
Net (purchases) sales of short-term investments	(267,904		)	(129,794		)	(205,411		)	96,239			(102,921		)	129,070			(48,395		)	143,819			(204,924		)
Change in investment of securities lending collateral	(125,904		)	131,389			10,385			(30,772		)	30,092			406,590			(51,692		)	323			179,191
Purchases of furniture, equipment and other	(8,082		)	(1,553		)	(2,251		)	(6,057		)	(1,803		)	(3,897		)	(4,067		)	(3,872		)	(7,647		)
Net Cash Provided By (Used For) Investing Activities	(68,013		)	276,028			(186,455		)	27,003			(100,479		)	526,467			(412,107		)	(126,185		)	(117,935		)
Financing Activities
Purchases of common shares under share repurchase program	(237,173		)	(258,150		)	(53,398		)	(269,054		)	(181,272		)	(358,656		)	(98,194		)	—			(1,552		)
Proceeds from common shares issued, net	2,875			4,693			8,586			3,779			10,591			9,194			2,152			308			(1,688		)
Proceeds from borrowings	—			—			—			50,000			214,526			—			269,843			—			—
Repayments of borrowings	(3,695		)	(31,072		)	(5,646		)	(34,022		)	(86,317		)	(1,103		)	(50,000		)	—			—
Change in securities lending collateral	125,904			(131,389		)	(10,385		)	30,772			(30,092		)	(406,590		)	51,692			(323		)	(179,191		)
Other	714			(893		)	1,593			2,296			5,061			4,816			88			(1,291		)	742
Preferred dividends paid	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)
Net Cash Provided By (Used For) Financing Activities	(117,836		)	(423,272		)	(65,711		)	(222,690		)	(73,964		)	(758,800		)	169,120			(7,767		)	(188,150		)
Effects of exchange rate changes on foreign currency cash	5,406			(526		)	9,270			(7,066		)	(6,043		)	(2,228		)	1,324			2,866			3,580
Increase (decrease) in cash	44,137			(3,257		)	24,528			2,761			4,137			(50,578		)	48,456			92,656			(7,702		)
Cash beginning of period	362,740			365,997			341,469			338,708			334,571			385,149			336,693			244,037			251,739
Cash end of period	$	406,877		$	362,740		$	365,997		341,469			$	338,708		$	334,571		$	385,149		$	336,693		$	244,037
Income taxes paid (received), net	$	3,670		$	3,140		$	1,928		$	1,430		$	704		$	5,021		$	4,234		$	19,887		$	2,231
Interest paid	$	2,191		$	12,831		$	1,832		$	13,437		$	1,785		$	12,556		$	529		$	11,312		$	184

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 approach 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, casualty clash and other business).

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

7

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Three Months Ended March 31, 2011 and 2010

(U.S. dollars in thousands)

	Three Months Ended									Three Months Ended
	March 31, 2011									March 31, 2010
	Insurance			Reinsurance			Total			Insurance			Reinsurance			Total
Gross premiums written (1)	$	634,583		$	331,013		$	964,566		$	633,576		$	323,477		953,687
Net premiums written	449,291			314,987			764,278			452,924			314,830			767,754
Net premiums earned	$	407,591		$	226,104		$	633,695		$	429,477		$	240,440		$	669,917
Fee income	778			37			815			753			41			794
Losses and loss adjustment expenses	(297,723		)	(196,157		)	(493,880		)	(312,011		)	(116,040		)	(428,051		)
Acquisition expenses, net	(61,415		)	(47,339		)	(108,754		)	(67,431		)	(50,193		)	(117,624		)
Other operating expenses	(74,737		)	(20,657		)	(95,394		)	(80,720		)	(20,398		)	(101,118		)
Underwriting income (loss)	$	(25,506	)	$	(38,012	)	(63,518		)	$	(29,932	)	$	53,850		23,918
Net investment income							88,307									92,972
Net realized gains							20,695									47,782
Net impairment losses recognized in earnings							(2,680		)							(1,606		)
Equity in net income of investment funds accounted for using the equity method							29,673									29,050
Other income							4,567									5,978
Other expenses							(7,026		)							(5,688		)
Interest expense							(7,721		)							(7,260		)
Net foreign exchange (losses) gains							(36,912		)							38,601
Income before income taxes							25,385									223,747
Income tax benefit (expense)							371									(6,753		)
Net income							25,756									216,994
Preferred dividends							(6,461		)							(6,461		)
Net income available to common shareholders							$	19,295								$	210,533
Underwriting Ratios
Loss ratio	73.0		%	86.8		%	77.9		%	72.6		%	48.3		%	63.9		%
Acquisition expense ratio (2)	14.9		%	20.9		%	17.0		%	15.5		%	20.9		%	17.4		%
Other operating expense ratio	18.3		%	9.1		%	15.1		%	18.8		%	8.5		%	15.1		%
Combined ratio	106.2		%	116.8		%	110.0		%	106.9		%	77.7		%	96.4		%
Net premiums written to gross premiums written	70.8		%	95.2		%	79.2		%	71.5		%	97.3		%	80.5		%

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

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

8

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Insurance Segment

(U.S. dollars in thousands)

	Three Months Ended
	March 31,
	2011			2010
	Amount		% of Total	Amount		% of Total
Net premiums written
Property, energy, marine and aviation	$	76,418	17.0	$	100,665	22.2
Programs	74,396		16.6	70,498		15.6
Professional liability	69,543		15.5	58,726		13.0
Executive assurance	45,910		10.2	61,355		13.5
National accounts casualty	40,191		8.9	30,809		6.8
Construction	31,509		7.0	36,322		8.0
Casualty	30,134		6.7	25,463		5.6
Travel and accident	21,501		4.8	21,806		4.8
Lenders products	21,074		4.7	16,319		3.6
Healthcare	9,117		2.0	8,524		1.9
Surety	9,734		2.2	8,091		1.8
Other (1)	19,764		4.4	14,346		3.2
Total	$	449,291	100.0	$	452,924	100.0
Net premiums earned
Property, energy, marine and aviation	$	73,599	18.1	$	95,037	22.1
Programs	67,018		16.4	66,159		15.4
Professional liability	73,127		17.9	62,245		14.5
Executive assurance	48,843		12.0	56,322		13.1
National accounts casualty	21,162		5.2	21,773		5.1
Construction	28,391		7.0	34,485		8.0
Casualty	28,427		7.0	28,069		6.5
Travel and accident	15,599		3.8	16,078		3.7
Lenders products	18,236		4.5	16,807		3.9
Healthcare	8,652		2.1	9,943		2.3
Surety	9,779		2.4	10,258		2.4
Other (1)	14,758		3.6	12,301		3.0
Total	$	407,591	100.0	$	429,477	100.0
Net premiums written by client location
United States	305,216		67.9	303,168		66.9
Europe	100,091		22.3	102,489		22.6
Other	43,984		9.8	47,267		10.5
Total	$	449,291	100.0	$	452,924	100.0
Net premiums written by underwriting location
United States	295,043		65.7	302,437		66.8
Europe	135,536		30.2	133,739		29.5
Other	18,712		4.1	16,748		3.7
Total	$	449,291	100.0	$	452,924	100.0

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

9

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Insurance Segment

(U.S. dollars in thousands)

	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
	2011			2010			2010			2010			2010			2009			2009			2009			2009
Gross premiums written	$	634,583		$	527,783		$	624,490		$	616,353		$	633,576		$	563,087		$	673,986		$	636,645		$	638,409
Net premiums written	449,291			351,841			431,361			422,837			452,924			369,704			473,676			419,318			441,586
Net premiums earned	$	407,591		$	404,275		$	411,881		$	405,473		$	429,477		$	426,649		$	443,319		$	417,454		$	401,097
Fee income	778			761			864			874			753			883			814			795			870
Losses and loss adjustment expenses	(297,723		)	(264,848		)	(265,411		)	(275,294		)	(312,011		)	(278,746		)	(303,304		)	(287,350		)	(270,015		)
Acquisition expenses, net	(61,415		)	(63,102		)	(67,309		)	(65,359		)	(67,431		)	(60,926		)	(60,964		)	(58,748		)	(57,623		)
Other operating expenses	(74,737		)	(82,879		)	(77,078		)	(71,727		)	(80,720		)	(75,144		)	(72,452		)	(70,836		)	(62,908		)
Underwriting income (loss)	$	(25,506	)	$	(5,793	)	$	2,947		$	(6,033	)	$	(29,932	)	$	12,716		$	7,413		$	1,315		$	11,421
Underwriting Ratios
Loss ratio	73.0		%	65.5		%	64.4		%	67.9		%	72.6		%	65.3		%	68.4		%	68.8		%	67.3		%
Acquisition expense ratio (1)	14.9		%	15.4		%	16.1		%	15.9		%	15.5		%	14.1		%	13.6		%	13.9		%	14.1		%
Other operating expense ratio	18.3		%	20.5		%	18.7		%	17.7		%	18.8		%	17.6		%	16.3		%	17.0		%	15.7		%
Combined ratio	106.2		%	101.4		%	99.2		%	101.5		%	106.9		%	97.0		%	98.3		%	99.7		%	97.1		%
Net premiums written
Property, energy, marine and aviation	$	76,418		$	44,258		$	88,412		$	88,194		$	100,665		$	42,811		$	118,536		$	86,385		$	106,029
Programs	74,396			60,969			68,264			73,345			70,498			60,685			66,964			72,279			74,807
Professional liability	69,543			44,743			72,787			64,089			58,726			60,109			66,002			57,773			52,008
Executive assurance	45,910			56,712			53,538			52,892			61,355			58,561			58,529			52,919			50,079
National accounts casualty	40,191			14,024			19,215			3,877			30,809			16,553			30,726			7,582			24,227
Construction	31,509			24,566			24,296			50,435			36,322			24,503			36,823			56,190			36,571
Casualty	30,134			27,389			28,493			26,617			25,463			23,037			26,753			27,217			26,539
Travel and accident	21,501			14,486			19,673			15,272			21,806			15,528			15,998			19,557			17,534
Lenders products	21,074			30,942			23,452			22,208			16,319			34,150			14,774			13,188			13,244
Healthcare	9,117			10,290			8,705			9,989			8,524			10,610			10,854			9,667			11,219
Surety	9,734			7,918			11,128			7,012			8,091			10,716			12,025			9,254			11,358
Other (2)	19,764			15,544			13,398			8,907			14,346			12,441			15,692			7,307			17,971
Total	$	449,291		$	351,841		$	431,361		$	422,837		$	452,924		$	369,704		$	473,676		$	419,318		$	441,586
Net premiums earned
Property, energy, marine and aviation	$	73,599		$	77,811		$	82,301		$	80,818		$	95,037		$	91,549		$	94,471		$	78,570		$	73,840
Programs	67,018			69,462			68,404			68,381			66,159			67,672			69,436			71,809			66,669
Professional liability	73,127			56,630			63,522			57,903			62,245			59,678			57,540			56,549			58,234
Executive assurance	48,843			56,530			52,369			55,143			56,322			56,764			56,094			52,288			47,816
National accounts casualty	21,162			17,360			18,595			16,810			21,773			19,606			19,969			13,079			14,439
Construction	28,391			32,099			31,348			33,536			34,485			36,800			42,495			43,364			40,420
Casualty	28,427			25,893			27,503			28,148			28,069			27,198			30,004			31,246			32,698
Travel and accident	15,599			15,705			17,418			17,590			16,078			16,580			18,193			18,198			13,156
Lenders products	18,236			19,617			17,593			17,153			16,807			17,201			15,353			15,233			15,119
Healthcare	8,652			9,701			9,738			10,340			9,943			9,886			12,303			10,830			10,928
Surety	9,779			9,810			9,876			8,023			10,258			11,448			12,239			12,141			13,391
Other (2)	14,758			13,657			13,214			11,628			12,301			12,268			15,222			14,147			14,387
Total	$	407,591		$	404,275		$	411,881		$	405,473		$	429,477		$	426,649		$	443,319		$	417,454		$	401,097

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

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

10

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Reinsurance Segment

(U.S. dollars in thousands)

	Three Months Ended
	March 31,
	2011			2010
	Amount		% of Total	Amount		% of Total
Net premiums written
Casualty (1)	$	81,802	26.0	$	72,582	23.1
Property excluding property catastrophe (2)	71,150		22.6	74,927		23.8
Other specialty	67,204		21.3	54,762		17.4
Property catastrophe	66,961		21.3	88,802		28.2
Marine and aviation	24,164		7.7	21,238		6.7
Other	3,706		1.1	2,519		0.8
Total	$	314,987	100.0	$	314,830	100.0
Net premiums earned
Casualty (1)	$	49,705	22.0	$	70,436	29.3
Property excluding property catastrophe (2)	63,006		27.9	79,239		33.0
Other specialty	37,758		16.7	17,769		7.4
Property catastrophe	51,642		22.8	53,873		22.4
Marine and aviation	21,626		9.6	18,072		7.5
Other	2,367		1.0	1,051		0.4
Total	$	226,104	100.0	$	240,440	100.0
Net premiums written
Pro rata	$	105,492	33.5	$	118,037	37.5
Excess of loss	209,495		66.5	196,793		62.5
Total	$	314,987	100.0	$	314,830	100.0
Net premiums earned
Pro rata	$	106,653	47.2	$	130,871	54.4
Excess of loss	119,451		52.8	109,569		45.6
Total	$	226,104	100.0	$	240,440	100.0
Net premiums written by client location
United States	$	167,215	53.1	$	171,001	54.3
Europe	125,700		39.9	107,142		34.0
Bermuda	4,379		1.4	22,675		7.2
Other	17,693		5.6	14,012		4.5
Total	$	314,987	100.0	$	314,830	100.0
Net premiums written by underwriting location
Bermuda	$	146,596	46.5	$	164,934	52.4
United States	113,756		36.1	103,726		32.9
Other	54,635		17.4	46,170		14.7
Total	$	314,987	100.0	$	314,830	100.0

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

(2) Includes facultative business

11

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Reinsurance Segment

(U.S. dollars in thousands)

	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
	2011			2010			2010			2010			2010			2009			2009			2009			2009
Gross premiums written	$	331,013		$	139,015		$	208,770		$	203,695		$	323,477		$	159,229		$	266,193		$	278,389		$	390,129
Net premiums written	314,987			131,070			204,756			201,421			314,830			149,383			253,632			274,536			381,277
Net premiums earned	$	226,104		$	227,871		$	215,528		$	217,538		$	240,440		$	281,889		$	291,066		$	281,804		$	299,467
Fee income	37			2,053			10			9			41			11			12			22			55
Losses and loss adjustment expenses	(196,157		)	(102,478		)	(93,782		)	(87,851		)	(116,040		)	(131,614		)	(141,610		)	(111,508		)	(130,527		)
Acquisition expenses, net	(47,339		)	(41,722		)	(43,970		)	(42,116		)	(50,193		)	(59,623		)	(61,775		)	(65,066		)	(68,835		)
Other operating expenses	(20,657		)	(31,575		)	(20,247		)	(19,303		)	(20,398		)	(24,161		)	(21,271		)	(16,943		)	(18,192		)
Underwriting income (loss)	$	(38,012	)	$	54,149		$	57,539		$	68,277		$	53,850		$	66,502		$	66,422		$	88,309		$	81,968
Underwriting Ratios
Loss ratio	86.8		%	45.0		%	43.5		%	40.4		%	48.3		%	46.7		%	48.7		%	39.6		%	43.6		%
Acquisition expense ratio	20.9		%	18.3		%	20.4		%	19.4		%	20.9		%	21.2		%	21.2		%	23.1		%	23.0		%
Other operating expense ratio	9.1		%	13.9		%	9.4		%	8.9		%	8.5		%	8.6		%	7.3		%	6.0		%	6.1		%
Combined ratio	116.8		%	77.2		%	73.3		%	68.7		%	77.7		%	76.5		%	77.2		%	68.7		%	72.7		%
Net premiums written
Casualty (1)	$	81,802		$	32,274		$	38,276		$	43,642		$	72,582		$	68,693		$	85,084		$	72,490		$	99,432
Property excluding property catastrophe (2)	71,150			46,835			70,149			57,880			74,927			49,413			90,845			90,569			119,088
Other specialty	67,204			27,008			30,468			18,920			54,762			10,578			10,595			3,304			40,712
Property catastrophe	66,961			3,529			40,255			70,403			88,802			3,022			50,539			91,981			91,903
Marine and aviation	24,164			21,303			24,913			9,609			21,238			17,576			16,187			15,391			28,523
Other	3,706			121			695			967			2,519			101			382			801			1,619
Total	$	314,987		$	131,070		$	204,756		$	201,421		$	314,830		$	149,383		$	253,632		$	274,536		$	381,277
Net premiums earned
Casualty (1)	$	49,705		$	48,609		$	52,792		$	59,501		$	70,436		$	86,193		$	88,721		$	84,078		$	85,946
Property excluding property catastrophe (2)	63,006			70,744			66,438			65,742			79,239			94,716			94,837			87,304			96,231
Other specialty	37,758			30,296			25,254			22,292			17,769			24,085			23,251			25,912			33,450
Property catastrophe	51,642			54,768			54,206			52,301			53,873			56,937			61,772			58,763			58,601
Marine and aviation	21,626			22,445			16,106			16,263			18,072			18,882			21,666			25,063			24,830
Other	2,367			1,009			732			1,439			1,051			1,076			819			684			409
Total	$	226,104		$	227,871		$	215,528		$	217,538		$	240,440		$	281,889		$	291,066		$	281,804		$	299,467

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

(2) Includes facultative business.

12

Arch Capital Group Ltd. and Subsidiaries

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

(U.S. dollars in thousands)

	March 31,					December 31,					September 30,					June 30,					March 31,
	2011					2010					2010					2010					2010
Investable assets:
Fixed maturities available for sale, at market value	$	9,033,408		76	%	$	9,082,828		76	%	$	9,810,102		81	%	$	9,428,456		81	%	$	9,295,680		80	%
Fixed maturities pledged under securities lending agreements, at market value (1)	161,888			2	%	75,575			1	%	184,226			2	%	195,372			2	%	181,871			2	%
Total fixed maturities	9,195,296			78	%	9,158,403			77	%	9,994,328			83	%	9,623,828			83	%	9,477,551			82	%
Short-term investments available for sale, at market value	1,130,142			10	%	915,841			8	%	780,671			6	%	554,304			5	%	669,798			6	%
Short-term investments pledged under securities lending agreements, at market value (1)	36,530			0	%	—			0	%	18,995			0	%	19,192			0	%	2,350			0	%
Cash	406,877			3	%	362,740			3	%	365,997			3	%	341,469			3	%	338,708			3	%
TALF investments, at market value (2)	400,970			3	%	402,449			3	%	410,881			3	%	407,469			4	%	406,997			3	%
Equity securities available for sale, at market value	419,893			4	%	363,255			3	%	120,604			1	%	62,788			1	%	76,333			1	%
Other investments	386,127			3	%	349,272			3	%	297,807			3	%	277,810			2	%	187,275			2	%
Investment funds accounted for using the equity method	395,258			3	%	434,600			4	%	432,418			4	%	408,402			3	%	405,584			3	%
Securities transactions entered into but not settled at the balance sheet date	(516,682		)	(4	)%	(144,047		)	(1	)%	(319,954		)	(3	)%	(108,059		)	(1	)%	(2,444		)	0	%
Total investable assets (1)	$	11,854,411		100	%	$	11,842,513		100	%	$	12,101,747		100	%	$	11,587,203		100	%	$	11,562,152		100	%
Investment portfolio metrics (1):
Average effective duration (in years)	2.73					2.83					3.11					2.90					2.77
Average credit quality	AA+					AA+					AA+					AA+					AA+
Imbedded book yield (before investment expenses)	3.36		%			3.52		%			3.53		%			3.39		%			3.57		%
Credit quality distribution of total fixed maturities (1) (3):
AAA	$	6,435,249		70	%	$	6,531,757		71	%	$	7,503,390		75	%	$	7,278,291		76	%	$	7,010,314		74	%
AA	1,043,463			11	%	1,053,666			12	%	993,018			10	%	1,011,324			10	%	1,117,951			12	%
A	697,002			7	%	605,483			7	%	573,298			6	%	543,359			6	%	580,769			6	%
BBB	425,913			5	%	388,564			4	%	347,810			4	%	274,738			3	%	263,195			3	%
BB	154,537			2	%	133,673			1	%	132,618			1	%	109,407			1	%	97,634			1	%
B	250,318			3	%	242,479			3	%	223,582			2	%	202,476			2	%	204,743			2	%
Lower than B	100,409			1	%	109,596			1	%	115,686			1	%	117,419			1	%	118,362			1	%
Not rated	88,405			1	%	93,185			1	%	104,926			1	%	86,814			1	%	84,583			1	%
Total fixed maturities, at market value	$	9,195,296		100	%	$	9,158,403		100	%	$	9,994,328		100	%	$	9,623,828		100	%	$	9,477,551		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.

13

Arch Capital Group Ltd. and Subsidiaries

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

(U.S. dollars in thousands)

Composition of Fixed Maturities

The following table summarizes the Company’s fixed maturities and fixed maturities pledged under securities lending agreements, excluding TALF investments, at March 31, 2011:

			Gross		Gross			Net					Estimated
	Estimated		Unrealized		Unrealized			Unrealized			Amortized		Market Value /
	Market Value		Gains		Losses			Gains (Losses)			Cost		Amortized Cost
Corporates	$	2,458,369	$	89,395	$	(13,070	)	$	76,325		$	2,382,044	103.2	%
Non-U.S. government-backed corporates	318,085		6,581		(809		)	5,772			312,313		101.8	%
FDIC guaranteed corporates	108,944		2,522		—			2,522			106,422		102.4	%
U.S. government and government agencies	788,000		13,974		(2,441		)	11,533			776,467		101.5	%
Agency mortgage-backed securities	1,464,986		7,851		(11,247		)	(3,396		)	1,468,382		99.8	%
Non-agency mortgage-backed securities	324,790		6,682		(11,183		)	(4,501		)	329,291		98.6	%
Agency commercial mortgage-backed securities	375,376		10,973		(1,546		)	9,427			365,949		102.6	%
Non-agency commercial mortgage-backed securities	789,369		14,844		(4,250		)	10,594			778,775		101.4	%
Municipal bonds	1,170,113		39,020		(4,552		)	34,468			1,135,645		103.0	%
Non-U.S. government securities	779,416		43,697		(12,237		)	31,460			747,956		104.2	%
Asset-backed securities	617,848		23,681		(4,199		)	19,482			598,366		103.3	%
Total	$	9,195,296	$	259,220	$	(65,534	)	$	193,686		$	9,001,610	102.2	%

Corporates (Excluding Guaranteed Amounts)

The following table summarizes the Company’s corporate bonds by sector and by credit quality at March 31, 2011, excluding guaranteed amounts:

	Estimated Market Value
			% of Asset		% of Investable
	Total		Class		Assets
Sector:
Financials	$	1,152,630	46.9	%	9.7	%
Industrials	853,825		34.7	%	7.2	%
Utilities	94,410		3.8	%	0.8	%
Foreign agencies	52,219		2.1	%	0.4	%
All other (1)	305,285		12.5	%	2.6	%
Total	$	2,458,369	100.0	%	20.7	%
Credit quality distribution (2):
AAA	$	627,541	25.5	%	5.3	%
AA	394,115		16.0	%	3.3	%
A	585,737		23.8	%	4.9	%
BBB	379,497		15.4	%	3.2	%
BB	142,134		5.8	%	1.2	%
B	215,436		8.8	%	1.8	%
Lower than B	8,258		0.3	%	0.1	%
Not rated	105,651		4.4	%	0.9	%
Total	$	2,458,369	100.0	%	20.7	%

The following table summarizes the Company’s top ten exposures to fixed income corporate issuers by market value at March 31, 2011, excluding guaranteed amounts:

	Estimated		% of Asset		% of Investable		Credit
Issuer	Market Value		Class		Assets		Rating (2)
JPMorgan Chase & Co	$	85,280	3.5	%	0.7	%	AA-
General Electric Co	76,088		3.1	%	0.6	%	AA+
Sovrisc BV	40,968		1.7	%	0.3	%	AAA
Citigroup Inc	38,155		1.6	%	0.3	%	AA-
Bank of America Corp	36,489		1.5	%	0.3	%	A+
MetLife Inc	36,223		1.5	%	0.3	%	A+
Wells Fargo & Company	28,892		1.2	%	0.2	%	AA-
The Goldman Sachs Group Inc	27,628		1.1	%	0.2	%	AA
Verizon Communications Inc	26,711		1.1	%	0.2	%	A-
Total SA	26,359		1.1	%	0.2	%	AA
Total	$	422,793	17.2	%	3.6	%

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

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

14

Arch Capital Group Ltd. and Subsidiaries

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

(U.S. dollars in thousands)

The following table provides information on the Company’s mortgage-backed securities (MBS) and commercial mortgage-backed securities (CMBS) at March 31, 2011, 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	$	2,704	AAA	$	2,758	102.0	%	0.0	%
	2004	17,313		A-	16,248		93.8	%	0.1	%
	2005	56,619		BB+	53,788		95.0	%	0.5	%
	2006	34,977		B-	33,081		94.6	%	0.3	%
	2007	50,625		CCC+	48,110		95.0	%	0.4	%
	2008	8,718		CCC	8,389		96.2	%	0.1	%
	2009 (6)	87,443		AAA	91,460		104.6	%	0.8	%
	2010 (6)	70,892		AAA	70,956		100.1	%	0.6	%
Total non-agency MBS		$	329,291	A-	$	324,790	98.6	%	2.7	%
Non-agency CMBS:	1998	$	3,587	AAA	$	3,696	103.0	%	0.0	%
	1999	38		AAA	37		97.4	%	0.0	%
	2001	24,849		AAA	24,388		98.1	%	0.2	%
	2002	36,662		AAA	37,059		101.1	%	0.3	%
	2003	60,417		AAA	63,158		104.5	%	0.5	%
	2004	115,620		AAA	118,750		102.7	%	1.0	%
	2005	51,960		AAA	52,257		100.6	%	0.4	%
	2006	3,584		AA	3,540		98.8	%	0.0	%
	2007	60,032		AAA	65,610		109.3	%	0.6	%
	2008	193		AA+	190		98.4	%	0.0	%
	2009	5,083		AAA	5,402		106.3	%	0.0	%
	2010	223,313		AAA	222,276		99.5	%	1.9	%
	2011	193,437		AAA	193,006		99.8	%	1.6	%
Total non-agency CMBS		$	778,775	AAA	$	789,369	101.4	%	6.7	%

	Non-Agency MBS				Non-Agency
Additional Statistics	Re-REMICs		All Other		CMBS (1)
Wtd. average loan age (months)	55		63		47
Wtd. average life (months) (2)	25		57		43
Wtd. average loan-to-value % (3)	69.1	%	68.8	%	68.0	%
Total delinquencies (4)	22.8	%	22.6	%	5.1	%
Current credit support % (5)	38.3	%	16.1	%	25.9	%

(1)Loans defeased with government/agency obligations represented approximately 6.1% of the collateral underlying the Company’s CMBS holdings.

(2)The weighted average life for MBS is based on the interest rates in effect at March 31, 2011.  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 34% to 87%, while the range of loan-to-values on CMBS is 48% 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) March 31, 2011:

			Average	Estimated Market Value
	Amortized		Credit			% of Amortized		% of Investable
	Cost		Quality	Total		Cost		Assets
Sector:
Credit cards (1)	$	268,173	AAA	$	279,832	104.3	%	2.4	%
Autos (2)	110,011		AAA	113,589		103.3	%	1.0	%
U.K. securitized (3)	67,662		AAA	69,607		102.9	%	0.6	%
Student loans (4)	45,687		AAA	46,793		102.4	%	0.4	%
Rate reduction bonds (5)	31,638		AAA	33,155		104.8	%	0.3	%
Other	60,330		AA+	60,405		100.1	%	0.5	%
	583,501		AAA	603,381		103.4	%	5.1	%
Home equity (6)	$	4,497	AAA	$	4,186	93.1	%	0.0	%
	154		A	153		99.4	%	0.0	%
	8,349		BB to B	7,297		87.4	%	0.1	%
	1,688		CCC to C	2,761		163.6	%	0.0	%
	190		D	70		36.8	%	0.0	%
	14,878		BB+	14,467		97.2	%	0.1	%
Total ABS	$	598,379	AAA	$	617,848	103.3	%	5.2	%

The effective duration of the total ABS was 1.0 years at March 31, 2011.

(1)The weighted average credit support % on credit cards is 16.2%.

(2)The weighted average credit support % on autos is 38.4%.

(3)The weighted average credit support % on U.K. securitized is 16.3%.

(4)The weighted average credit support % on student loans is 8.9%.

(5)The weighted average credit support % on rate reduction bonds is 19.3%.

(6)The weighted average credit support % on home equity is 23.2%.

The Company’s investment portfolio included $45.2 million par in sub-prime securities at March 31, 2011, with an estimated market value of $19.9 million and an average credit quality of “Ba1/BBB.” Such amounts were primarily in the home equity sector with the balance in other ABS, MBS and CMBS sectors. In addition, the portfolio of collateral backing the Company’s securities lending program contains approximately $11.7 million estimated market value of sub-prime securities with an average credit quality of “B-” from Standard & Poors and “Caa2” from Moody’s.

15

Arch Capital Group Ltd. and Subsidiaries

Investment Information — Bank Loan Investments

(U.S. dollars in thousands)

The Company’s investments in bank loans are included in the following categories at March 31, 2011:

	Carrying		% of Asset		% of Investable
	Value		Class		Assets
Investment funds accounted for using the equity method	$	208,387	58.3	%	1.8	%
Corporate bonds, at market value	109,633		30.7	%	0.9	%
Other investments, at market value	39,178		11.0	%	0.3	%
Total	$	357,198	100.0	%	3.0	%

The following table summarizes the Company’s bank loans by currency (translated into U.S. Dollars) at March 31, 2011:

	Carrying		% of Asset		% of Investable
	Value		Class		Assets
U.S.-denominated	$	239,753	67.1	%	2.0	%
Euro-denominated	117,445		32.9	%	1.0	%
Total	$	357,198	100.0	%	3.0	%

The following table summarizes the Company’s bank loans by major sector at  March 31, 2011:

	Carrying		% of Asset		% of Investable
	Value		Class		Assets
Sector:
Consumer cyclical	$	67,156	18.8	%	0.6	%
Industrials	55,280		15.5	%	0.5	%
Media	54,835		15.4	%	0.5	%
Basic materials	31,767		8.9	%	0.3	%
Consumer non-cyclical	26,971		7.6	%	0.2	%
Utilities	26,329		7.4	%	0.2	%
All other	94,860		26.4	%	0.8	%
Total	$	357,198	100.0	%	3.0	%
Weighted average rating factor (Moody’s)	B2

16

Arch Capital Group Ltd. and Subsidiaries

Comments on Regulation G

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

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

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

17

Arch Capital Group Ltd. and Subsidiaries

Operating Income Reconciliation

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

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

	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
	2011			2010			2010			2010			2010			2009			2009			2009			2009
After-tax operating income available to common shareholders	$	7,859		$	129,489		$	130,672		$	132,182		$	98,731		$	159,431		$	160,332		$	163,041		$	169,001
Net realized gains (losses), net of tax	21,585			71,821			68,611			61,119			45,503			88,592			69,190			(11,243		)	(9,111		)
Net impairment losses recognized in earnings, net of tax	(2,680		)	(3,230		)	(2,075		)	(4,410		)	(1,606		)	(4,493		)	(4,643		)	(20,786		)	(36,134		)
Equity in net income (loss) of investment funds accounted for using the equity method, net of tax	29,673			22,990			9,708			(348		)	29,050			32,391			69,119			75,890			(9,581		)
Net foreign exchange (losses) gains, net of tax	(37,142		)	6,581			(65,346		)	48,447			38,855			8,775			(19,591		)	(54,773		)	25,694
Net income available to common shareholders	$	19,295		$	227,651		$	141,570		$	236,990		$	210,533		$	284,696		$	274,407		$	152,129		$	139,869
Diluted per common share results:
After-tax operating income available to common shareholders	$	0.17		$	2.58		$	2.55		$	2.48		$	1.78		$	2.66		$	2.56		$	2.60		$	2.70
Net realized gains (losses), net of tax	0.46			1.43			1.34			1.15			0.82			1.48			1.11			(0.18		)	(0.14		)
Net impairment losses recognized in earnings, net of tax	(0.06		)	(0.06		)	(0.04		)	(0.08		)	(0.03		)	(0.08		)	(0.08		)	(0.33		)	(0.58		)
Equity in net income (loss) of investment funds accounted for using the equity method, net of tax	0.63			0.46			0.19			(0.01		)	0.52			0.54			1.11			1.21			(0.15		)
Net foreign exchange (losses) gains, net of tax	(0.79		)	0.13			(1.27		)	0.91			0.70			0.15			(0.31		)	(0.87		)	0.41
Net income available to common shareholders	$	0.41		$	4.54		$	2.77		$	4.45		$	3.79		$	4.75		$	4.39		$	2.43		$	2.24
Weighted average common shares and common share equivalents outstanding — diluted	46,820,172			50,102,143			51,182,009			53,265,303			55,513,827			59,910,667			62,533,816			62,626,317			62,559,969

18

Arch Capital Group Ltd. and Subsidiaries

Share Repurchase Activity

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

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

	Three Months Ended																		Cumulative
	March 31,		December 31,		September 30,		June 30,		March 31,		December 31,		September 30,		June 30,		March 31,		March 31,
	2011		2010		2010		2010		2010		2009		2009		2009		2009		2011
Effect of share repurchases:
Aggregate cost of shares repurchased	$	237,173	$	258,151	$	53,398	$	269,054	$	181,272	$	358,655	$	98,194	$	0	$	1,552	$	2,507,644
Shares repurchased	2,687,461		2,893,017		681,065		3,644,227		2,529,913		5,148,271		1,533,247		—		33,305		34,406,795
Average price per share repurchased	$	88.25	$	89.23	$	78.40	$	73.83	$	71.65	$	69.67	$	64.04			$	46.60	$	72.88
Average book value per common share (1)	$	90.50	$	89.61	$	85.65	$	79.49	$	74.96	$	71.25	$	65.12	$	57.68	$	52.98
Average repurchase price-to-book multiple	0.98x		1.00x		0.92x		0.93x		0.96x		0.98x		0.98x				0.88x
Remaining share repurchase authorization (2)	$	992,356

(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, 2012.

19

Arch Capital Group Ltd. and Subsidiaries

Annualized Operating Return on Average Common Equity

(U.S. dollars in thousands)

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

	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
	2011			2010			2010			2010			2010			2009			2009			2009			2009
After-tax operating income available to common shareholders	$	7,859		$	129,489		$	130,672		$	132,182		$	98,731		$	159,431		$	160,332		$	163,041		$	169,001
Annualized after-tax operating income available to common shareholders (a)	$	31,436		$	517,956		$	522,688		$	528,728		$	394,924		$	637,724		$	641,328		$	652,164		$	676,004
Beginning 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
Ending common shareholders’ equity	4,000,535			4,188,003			4,392,910			4,073,003			4,053,757			3,998,349			4,135,822			3,704,968			3,305,396
Average common shareholders’ equity (b)	$	4,094,269		$	4,290,457		$	4,232,957		$	4,063,380		$	4,026,053		$	4,067,086		$	3,920,395		$	3,505,182		$	3,206,681
Annualized operating return on average common equity (a)/(b)	0.8		%	12.1		%	12.3		%	13.0		%	9.8		%	15.7		%	16.4		%	18.6		%	21.1		%

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Arch Capital Group Ltd. and Subsidiaries

Capital Structure

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

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

	March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
	2011			2010			2010			2010			2010			2009			2009			2009			2009
Debt:
Senior notes, due May 1, 2034 (7.35%)	$	300,000		$	300,000		$	300,000		$	300,000		$	300,000		$	300,000		$	300,000		$	300,000		$	300,000
Revolving credit agreement borrowings, due August 30, 2011 (variable)	100,000			100,000			125,000			125,000			100,000			100,000			100,000			100,000			100,000
Total debt	$	400,000		$	400,000		$	425,000		$	425,000		$	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)	4,000,535			4,188,003			4,392,910			4,073,003			4,053,757			3,998,349			4,135,822			3,704,968			3,305,396
Total shareholders’ equity	$	4,325,535		$	4,513,003		$	4,717,910		$	4,398,003		$	4,378,757		$	4,323,349		$	4,460,822		$	4,029,968		$	3,630,396
Total capital	$	4,725,535		$	4,913,003		$	5,142,910		$	4,823,003		$	4,778,757		$	4,723,349		$	4,860,822		$	4,429,968		$	4,030,396
TALF non-recourse borrowings, at market value, due between 2012 to 2015 (various) (3)	322,222			325,770			331,797			336,213			346,746			217,565			219,843			—			—
Total capital and TALF non-recourse borrowings	$	5,047,757		$	5,238,773		$	5,474,707		$	5,159,216		$	5,125,503		$	4,940,914		$	5,080,665		$	4,429,968		$	4,030,396
Common shares outstanding, net of treasury shares (4) (b)	43,950,213			46,544,075			49,225,371			49,630,570			52,709,934			54,761,678			59,524,309			60,980,806			60,532,222
Book value per common share (a)/(b)	$	91.02		$	89.98		$	89.24		$	82.07		$	76.91		$	73.01		$	69.48		$	60.76		$	54.61
Leverage ratios:
Senior notes/total capital	6.3		%	6.1		%	5.8		%	6.2		%	6.3		%	6.4		%	6.2		%	6.8		%	7.4		%
Revolving credit agreement borrowings/total capital	2.1		%	2.0		%	2.4		%	2.6		%	2.1		%	2.1		%	2.1		%	2.3		%	2.5		%
Debt/total capital	8.5		%	8.1		%	8.3		%	8.8		%	8.4		%	8.5		%	8.2		%	9.0		%	9.9		%
Preferred/total capital	6.9		%	6.6		%	6.3		%	6.7		%	6.8		%	6.9		%	6.7		%	7.3		%	8.1		%
Debt and preferred/total capital	15.3		%	14.8		%	14.6		%	15.6		%	15.2		%	15.3		%	14.9		%	16.4		%	18.0		%

(1)	8,000,000 shares, $25 liquidation preference, redeemable by Company on or after February 1, 2011.
(2)	5,000,000 shares, $25 liquidation preference, redeemable by Company on or after May 15, 2011.
(3)	The Company participates in the Federal Reserve’s Term Asset-Backed Securities Loan Facility (“TALF”), which provides secured financing for asset-backed securities backed by certain types of consumer and small-business loans and legacy commercial mortgage-backed securities. TALF financing is non-recourse to the Company, is collateralized by the purchased securities and provides financing for the purchase price of the securities, less a ‘haircut’ that varies based on the type of collateral. The Company can deliver the collateralized securities to the Federal Reserve in full defeasance of the loan. The Company excludes the TALF non-recourse borrowings from the calculations of leverage ratios and total capital due to the nature of the borrowings. If the TALF non-recourse borrowings were included in the leverage ratios and total capital, the ratio of debt to total capital would have been 14.3% and the ratio of debt and preferred to total capital would have been 20.7% at March 31, 2011.
(4)	Excludes the effects of stock options and restricted stock units outstanding.

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