Arch Capital (ACGL) 8-K Arch Capital Group LTD. Reports 2017 Second Quarter Results

EXHIBIT 99.2

	Waterloo House, Ground Floor
	100 Pitts Bay Road
	Pembroke HM 08 Bermuda
	441-278-9250
	441-278-9255 fax
	Contact:
	Mark D. Lyons
	Executive Vice President and Chief Financial Officer

Financial Supplement

Financial Information

as of June 30, 2017

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.com for further information describing Arch Capital Group Ltd.

Arch Capital Group Ltd. and Subsidiaries

Table of Contents

			Page
I.	Financial Highlights		3
II.	Consolidated Financial Statements
	a.	Consolidated Statements of Income	4
	b.	Consolidated Balance Sheets	5
	c.	Consolidated Statements of Changes in Shareholders’ Equity	6
	d.	Consolidated Statements of Cash Flows	7
III.	Segment Information
	a.	Overview	8
	b.	Consolidated Results	10
	c.	Insurance Segment Results	14
	d.	Reinsurance Segment Results	16
	e.	Mortgage Segment Results	18
	f.	Selected Information on Losses and Loss Adjustment Expenses	22
IV.	Investment Information
	a.	Investable Asset Summary and Investment Portfolio Metrics	23
	b.	Composition of Net Investment Income, Yield and Total Return	24
	c.	Composition of Fixed Maturities	25
	d.	Credit Quality Distribution and Maturity Profile	26
	e.	Analysis of Corporate Exposures	27
	f.	Structured Securities and Eurozone Investments	28
V.	Other
	a.	Comments on Regulation G	29
	b.	Operating Income Reconciliation and Annualized Operating Return on Average Common Equity	30
	c.	Operating Income and Effective Tax Rate Calculations	31
	d.	Capital Structure and Share Repurchase Activity	32

1

Arch Capital Group Ltd. and Subsidiaries

Basis of Presentation

Basis of Presentation

All financial information contained herein is unaudited, however, certain information relating to the consolidated balance sheet at December 31, 2016 is derived from or agrees to audited financial information. During the 2017 first quarter, the Company changed its presentation of ‘amortization of intangible assets’ on its consolidated statements of income to split out such item (previously reflected in acquisition expenses and/or other operating expenses) for all periods presented. Unless otherwise noted, all data is in thousands, except for share and per share amounts and ratio information.

On December 31, 2016, the Company completed the acquisition of United Guaranty Corporation (“UGC”) pursuant to the Stock Purchase Agreement with American International Group, Inc. (“AIG”) entered into on August 15, 2016. As such, the acquisition of UGC is reflected in the Company’s consolidated balance sheets from December 31, 2016 on and in the Company’s consolidated statements of income for the 2017 first quarter on.

In March 2014, the Company invested $100.0 million to acquire approximately 11% of Watford Holdings Ltd.’s common equity and a warrant to purchase additional common equity. Watford Holdings Ltd. is the parent of Watford Re Ltd., a multi-line Bermuda reinsurance company (together with Watford Holdings Ltd., “Watford Re”). In accordance with GAAP, Watford is considered a variable interest entity and the Company concluded that it is the primary beneficiary of Watford Re. As such, 100% of the results of Watford Re are included in the Company’s consolidated financial statements. The portion of Watford Re’s earnings owned by third parties is recorded in the consolidated statements of income as ‘amounts attributable to noncontrolling interests.’ In addition, the Company reflects Watford Re’s redeemable preference shares in the mezzanine section of the Company’s consolidated balance sheets as ‘redeemable noncontrolling interests’ because they have redemption features that are not solely within the control of Watford Re.

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 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 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 the Company’s 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 the Company’s ability to maintain and improve the Company’s ratings; investment performance; the loss of key personnel; the adequacy of the Company’s 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; the Company’s 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 the Company of reinsurance to manage gross and net exposures; the failure of others to meet their obligations to the Company; and other factors identified in the Company’s 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 the Company or persons acting on the Company’s behalf are expressly qualified in their entirety by these cautionary statements. 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.

2

Arch Capital Group Ltd. and Subsidiaries

Financial Highlights

The following table presents financial highlights (1):

(U.S. Dollars in thousands, except share data)	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2017			2016			Change		2017			2016			Change
Underwriting results:
Gross premiums written	$	1,533,142		$	1,292,199		18.6	%	$	3,139,828		$	2,683,260		17.0	%
Net premiums written	1,108,292			918,735			20.6	%	2,240,866			1,895,836			18.2	%
Net premiums earned	1,090,120			885,418			23.1	%	2,085,140			1,721,480			21.1	%
Underwriting income (2)	198,062			118,350			67.4	%	412,429			234,985			75.5	%
Loss ratio	53.1		%	56.6		%	(3.5	)	50.2		%	54.9		%	(4.7	)
Acquisition expense ratio	14.3		%	15.7		%	(1.4	)	14.6		%	15.9		%	(1.3	)
Other operating expense ratio	14.8		%	17.1		%	(2.3	)	15.8		%	17.2		%	(1.4	)
Combined ratio	82.2		%	89.4		%	(7.2	)	80.6		%	88.0		%	(7.4	)
Net investment income	$	92,520		$	70,397		31.4	%	$	188,332		$	140,806		33.8	%
Per diluted share	$	0.66		$	0.57		15.8	%	$	1.35		$	1.13		19.5	%
Net income available to Arch common shareholders	$	173,818		$	205,570		(15.4	)%	$	415,727		$	354,884		17.1	%
Per diluted share	$	1.25		$	1.65		(24.2	)%	$	2.99		$	2.85		4.9	%
After-tax operating income available to Arch common shareholders (2)	$	168,919		$	140,574		20.2	%	$	366,884		$	286,316		28.1	%
Per diluted share	$	1.21		$	1.13		7.1	%	$	2.64		$	2.30		14.8	%
Comprehensive income available to Arch	$	279,285		$	273,260		2.2	%	$	631,276		$	546,189		15.6	%
Cash flow from operations	$	274,093		$	152,934		79.2	%	$	420,287		$	410,213		2.5	%
Diluted weighted average common shares and common share equivalents outstanding	139,244,646			124,365,596			12.0	%	139,140,632			124,425,126			11.8	%
Financial measures:
Change in book value per common share during period	3.3		%	4.4		%	(1.1	)	8.0		%	8.6		%	(0.6	)
Annualized return on average common equity	8.7		%	13.3		%	(4.6	)	10.7		%	11.7		%	(1.0	)
Annualized operating return on average common equity (2)	8.5		%	9.1		%	(0.6	)	9.4		%	9.4		%	—
Total return on investments (3)
Including effects of foreign exchange	1.63		%	1.27		%	36 bps		3.37		%	3.11		%	26 bps
Excluding effects of foreign exchange	1.29		%	1.63		%	-34 bps		2.94		%	3.14		%	-20 bps

(1) Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.

(2) See ‘Comments on Regulation G’ for a further discussion of consolidated underwriting income, after-tax operating income or loss available to Arch common shareholders and annualized operating return on average common equity.

(3) 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.

3

Arch Capital Group Ltd. and Subsidiaries

Consolidated Statements of Income

(U.S. Dollars in thousands, except share data)	Three Months Ended															Six Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			June 30,			June 30,
	2017			2017			2016			2016			2016			2017			2016
Revenues
Net premiums written	$	1,248,695		$	1,276,260		$	872,315		$	1,014,278		$	1,023,563		$	2,524,955		$	2,144,798
Change in unearned premiums	(7,821		)	(159,243		)	96,540			(55,875		)	(17,578		)	(167,064		)	(187,234		)
Net premiums earned	1,240,874			1,117,017			968,855			958,403			1,005,985			2,357,891			1,957,564
Net investment income	111,124			117,874			91,051			93,618			88,338			228,998			182,073
Net realized gains (losses)	21,735			34,153			(93,061		)	125,105			68,218			55,888			105,542
Net impairment losses recognized in earnings	(1,730		)	(1,807		)	(13,593		)	(3,867		)	(5,343		)	(3,537		)	(12,982		)
Other underwriting income	4,822			4,633			18,922			7,980			25,224			9,455			30,271
Equity in net income (loss) of investment funds accounted for using the equity method	32,706			48,088			16,421			16,662			8,737			80,794			15,392
Other income (loss)	(1,994		)	(782		)	(368		)	(400		)	(7		)	(2,776		)	(32		)
Total revenues	1,407,537			1,319,176			988,227			1,197,501			1,191,152			2,726,713			2,277,828
Expenses
Losses and loss adjustment expenses	(689,860		)	(552,570		)	(553,875		)	(524,183		)	(584,592		)	(1,242,430		)	(1,107,541		)
Acquisition expenses	(190,436		)	(182,289		)	(165,843		)	(161,267		)	(172,677		)	(372,725		)	(340,515		)
Other operating expenses	(169,981		)	(174,719		)	(163,342		)	(153,286		)	(157,314		)	(344,700		)	(307,462		)
Corporate expenses	(24,876		)	(27,792		)	(36,678		)	(18,485		)	(17,200		)	(52,668		)	(26,583		)
Amortization of intangible assets	(30,824		)	(31,294		)	(4,850		)	(4,865		)	(4,880		)	(62,118		)	(9,628		)
Interest expense	(28,749		)	(28,676		)	(18,539		)	(15,943		)	(15,663		)	(57,425		)	(31,770		)
Net foreign exchange gains (losses)	(39,543		)	(19,404		)	38,176			(2,621		)	24,662			(58,947		)	1,096
Total expenses	(1,174,269		)	(1,016,744		)	(904,951		)	(880,650		)	(927,664		)	(2,191,013		)	(1,822,403		)
Income before income taxes	233,268			302,432			83,276			316,851			263,488			535,700			455,425
Income tax (expense) benefit	(34,169		)	(28,397		)	12,298			(13,231		)	(14,131		)	(62,566		)	(30,441		)
Net income	199,099			274,035			95,574			303,620			249,357			473,134			424,984
Net (income) loss attributable to noncontrolling interests	(13,932		)	(20,908		)	(21,561		)	(50,748		)	(38,302		)	(34,840		)	(59,131		)
Net income attributable to Arch	185,167			253,127			74,013			252,872			211,055			438,294			365,853
Preferred dividends	(11,349		)	(11,218		)	(11,617		)	(5,484		)	(5,485		)	(22,567		)	(10,969		)
Net income available to Arch common shareholders	$	173,818		$	241,909		$	62,396		$	247,388		$	205,570		$	415,727		$	354,884
Comprehensive income (loss) available to Arch	$	279,285		$	351,991		$	(160,280	)	$	208,790		$	273,260		$	631,276		$	546,189
Net income per common share and common share equivalent
Basic	$	1.29		$	1.80		$	0.51		$	2.05		$	1.70		$	3.10		$	2.94
Diluted	$	1.25		$	1.74		$	0.50		$	1.98		$	1.65		$	2.99		$	2.85
Weighted average common shares and common share equivalents outstanding
Basic	134,486,664			134,034,927			121,196,248			120,938,916			120,599,060			134,262,043			120,513,620
Diluted	139,244,646			139,047,672			125,427,259			124,931,653			124,365,596			139,140,632			124,425,126

4

Arch Capital Group Ltd. and Subsidiaries

Consolidated Balance Sheets

(U.S. Dollars in thousands, except share data)	June 30,			March 31,			December 31,			September 30,			June 30,
	2017			2017			2016			2016			2016
Assets
Investments:
Fixed maturities available for sale, at fair value	$	13,671,011		$	13,745,932		$	13,426,577		$	11,026,929		$	11,050,464
Short-term investments available for sale, at fair value	914,356			803,619			612,005			1,184,408			853,531
Collateral received under securities lending, at fair value	627,843			538,361			762,565			466,055			338,326
Equity securities available for sale, at fair value	461,017			428,594			518,041			521,587			490,815
Other investments available for sale, at fair value	248,661			228,437			167,970			168,243			182,957
Investments accounted for using the fair value option	3,827,408			3,648,120			3,421,220			3,389,573			3,066,029
Investments accounted for using the equity method	948,856			861,607			811,273			797,542			685,766
Total investments	20,699,152			20,254,670			19,719,651			17,554,337			16,667,888
Cash	740,320			703,754			842,942			578,816			516,591
Accrued investment income	108,562			104,168			124,483			81,907			85,317
Securities pledged under securities lending, at fair value	610,121			525,569			744,980			453,757			330,773
Premiums receivable	1,314,564			1,254,048			1,072,435			1,182,708			1,260,607
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses	2,155,107			2,133,148			2,114,138			2,076,248			2,034,970
Contractholder receivables	1,826,966			1,766,340			1,717,436			1,649,441			1,600,426
Ceded unearned premiums	961,330			941,923			859,567			541,238			540,954
Deferred acquisition costs	506,748			487,925			447,560			418,818			412,258
Receivable for securities sold	212,512			239,678			58,284			285,112			142,315
Goodwill and intangible assets	712,975			750,315			781,553			90,941			88,327
Other assets	1,014,282			930,688			889,080			691,569			693,152
Total assets	$	30,862,639		$	30,092,226		$	29,372,109		$	25,604,892		$	24,373,578
Liabilities
Reserve for losses and loss adjustment expenses	$	10,520,511		$	10,296,821		$	10,200,960		$	9,610,189		$	9,471,647
Unearned premiums	3,679,651			3,631,259			3,406,870			2,671,121			2,618,359
Reinsurance balances payable	361,000			321,285			300,407			271,688			295,987
Contractholder payables	1,826,966			1,766,340			1,717,436			1,649,441			1,600,426
Collateral held for insured obligations	338,737			327,161			301,406			277,463			261,228
Senior notes	1,732,570			1,732,410			1,732,258			791,437			791,392
Revolving credit agreement borrowings	686,452			734,961			756,650			398,100			397,830
Securities lending payable	627,852			538,353			762,554			466,047			338,318
Payable for securities purchased	458,722			389,649			76,183			474,041			382,834
Other liabilities	648,099			674,313			806,260			641,115			556,019
Total liabilities	20,880,560			20,412,552			20,060,984			17,250,642			16,714,040
Redeemable noncontrolling interests	205,736			205,644			205,553			205,459			205,366
Shareholders’ equity
Non-cumulative preferred shares	772,555			772,555			772,555			775,000			325,000
Convertible non-voting common equivalent preferred shares	489,627			1,101,304			1,101,304			—			—
Common shares	609			583			582			582			581
Additional paid-in capital	1,196,884			548,053			531,687			516,204			517,942
Retained earnings	8,412,114			8,238,296			7,996,701			7,934,304			7,686,916
Accumulated other comprehensive income (loss), net of deferred income tax	78,441			(15,677		)	(114,541		)	119,752			163,834
Common shares held in treasury, at cost	(2,051,343		)	(2,039,270		)	(2,034,570		)	(2,031,859		)	(2,028,690		)
Total shareholders’ equity available to Arch	8,898,887			8,605,844			8,253,718			7,313,983			6,665,583
Non-redeemable noncontrolling interests	877,456			868,186			851,854			834,808			788,589
Total shareholders’ equity	9,776,343			9,474,030			9,105,572			8,148,791			7,454,172
Total liabilities, noncontrolling interests and shareholders’ equity	$	30,862,639		$	30,092,226		$	29,372,109		$	25,604,892		$	24,373,578
Common shares and common share equivalents outstanding, net of treasury shares	136,354,159			135,790,306			135,550,337			122,675,197			122,572,260
Book value per common share (1)	$	59.60		$	57.69		$	55.19		$	53.30		$	51.73

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

5

Arch Capital Group Ltd. and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

(U.S. Dollars in thousands)	Three Months Ended															Six Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			June 30,			June 30,
	2017			2017			2016			2016			2016			2017			2016
Non-cumulative preferred shares
Balance at beginning of period	$	772,555		$	772,555		$	775,000		$	325,000		$	325,000		$	772,555		$	325,000
Series E preferred shares issued	—			—			—			450,000			—			—			—
Series C preferred shares repurchased	—			—			(2,445		)	—			—			—			—
Balance at end of period	$	772,555		$	772,555		$	772,555		$	775,000		$	325,000		$	772,555		$	325,000
Convertible non-voting common equivalent preferred shares
Balance at beginning of period	1,101,304			1,101,304			—			—			—			1,101,304			—
Series D preferred shares issued	—			—			1,101,304			—			—			—			—
Series D preferred shares converted to common shares	(611,677		)	—			—			—			—			(611,677		)	—
Balance at end of period	489,627			1,101,304			1,101,304			—			—			489,627			—
Common shares
Balance at beginning of period	583			582			582			581			579			582			577
Common shares issued, net	26			1			—			1			2			27			4
Balance at end of period	609			583			582			582			581			609			581
Additional paid-in capital
Balance at beginning of period	548,053			531,687			516,204			517,942			485,943			531,687			467,339
Series D preferred shares converted to common shares	611,653			—			—			—			—			611,653			—
Issue costs on Series E preferred shares	—			—			—			(15,101		)	—			—			—
All other	37,178			16,366			15,483			13,363			31,999			53,544			50,603
Balance at end of period	1,196,884			548,053			531,687			516,204			517,942			1,196,884			517,942
Retained earnings
Balance at beginning of period	8,238,296			7,996,701			7,934,304			7,686,916			7,481,346			7,996,701			7,332,032
Cumulative effect of an accounting change	—			(314		)	—			—			—			(314		)	—
Balance at beginning of period, as adjusted	8,238,296			7,996,387			7,934,304			7,686,916			7,481,346			7,996,387			7,332,032
Net income	199,099			274,035			95,574			303,620			249,357			473,134			424,984
Amounts attributable to noncontrolling interests	(13,932		)	(20,908		)	(21,560		)	(50,748		)	(38,302		)	(34,840		)	(59,131		)
Preferred share dividends	(11,349		)	(11,218		)	(11,617		)	(5,484		)	(5,485		)	(22,567		)	(10,969		)
Balance at end of period	8,412,114			8,238,296			7,996,701			7,934,304			7,686,916			8,412,114			7,686,916
Accumulated other comprehensive income (loss)
Balance at beginning of period	(15,677		)	(114,541		)	119,752			163,834			101,629			(114,541		)	(16,502		)
Change in unrealized appreciation (decline) in value of available-for-sale investments, net of deferred income tax	75,745			95,748			(219,989		)	(38,711		)	80,314			171,493			180,974
Change in foreign currency translation adjustments	18,373			3,116			(14,304		)	(5,371		)	(18,109		)	21,489			(638		)
Balance at end of period	78,441			(15,677		)	(114,541		)	119,752			163,834			78,441			163,834
Common shares held in treasury, at cost
Balance at beginning of period	(2,039,270		)	(2,034,570		)	(2,031,859		)	(2,028,690		)	(2,019,249		)	(2,034,570		)	(1,941,904		)
Shares repurchased for treasury	(12,073		)	(4,700		)	(2,711		)	(3,169		)	(9,441		)	(16,773		)	(86,786		)
Balance at end of period	(2,051,343		)	(2,039,270		)	(2,034,570		)	(2,031,859		)	(2,028,690		)	(2,051,343		)	(2,028,690		)
Total shareholders’ equity available to Arch	8,898,887			8,605,844			8,253,718			7,313,983			6,665,583			8,898,887			6,665,583
Non-redeemable noncontrolling interests	877,456			868,186			851,854			834,808			788,589			877,456			788,589
Total shareholders’ equity	$	9,776,343		$	9,474,030		$	9,105,572		$	8,148,791		$	7,454,172		$	9,776,343		$	7,454,172

6

Arch Capital Group Ltd. and Subsidiaries

Consolidated Statements of Cash Flows

(U.S. Dollars in thousands)	Three Months Ended															Six Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			June 30,				June 30,
	2017			2017			2016			2016			2016			2017				2016
Operating Activities
Net income	$	199,099		$	274,035		$	95,574		$	303,620		$	249,357		$	473,134			$	424,984
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized (gains) losses	(34,130		)	(40,855		)	83,605			(135,775		)	(83,303		)	(74,985		)		(126,337		)
Net impairment losses included in earnings	1,730			1,807			13,593			3,867			5,343			3,537				12,982
Equity in net income or loss of investment funds accounted for using the equity method and other income or loss	(11,388		)	(36,141		)	(2,513		)	(3,004		)	7,918			(47,529		)		11,161
Amortization of intangible assets	30,824			31,294			4,850			4,865			4,880			62,118				9,628
Share-based compensation	27,082			15,657			10,270			10,542			21,504			42,739				35,769
Changes in:
Reserve for losses and loss adjustment expenses, net of unpaid losses and loss adjustment expenses recoverable	127,315			53,027			94,967			91,078			74,944			180,342				186,199
Unearned premiums, net of ceded unearned premiums	7,821			159,243			(96,540		)	55,875			17,578			167,064				187,234
Premiums receivable	(46,148		)	(176,350		)	127,296			79,905			(61,466		)	(222,498		)		(278,814		)
Deferred acquisition costs	(11,825		)	(41,728		)	2,309			(7,456		)	(3,400		)	(53,553		)	��	(33,450		)
Reinsurance balances payable	29,998			20,114			(17,656		)	(24,514		)	21,783			50,112				73,712
Other items, net	25,571			(51,985		)	43,750			116,912			(36,457		)	(26,414		)		38,156
Net cash provided by operating activities	345,949			208,118			359,505			495,915			218,681			554,067				541,224
Investing Activities
Purchases of fixed maturity investments	(9,422,408		)	(10,476,918		)	(7,692,255		)	(10,298,824		)	(9,408,194		)	(19,899,326		)		(17,541,731		)
Purchases of equity securities	(256,322		)	(143,833		)	(287,935		)	(165,089		)	(84,415		)	(400,155		)		(212,678		)
Purchases of other investments	(456,665		)	(427,039		)	(380,632		)	(358,161		)	(345,415		)	(883,704		)		(650,613		)
Proceeds from sales of fixed maturity investments	9,224,934			10,386,746			7,828,042			9,753,375			9,151,013			19,611,680				16,978,549
Proceeds from sales of equity securities	219,717			253,347			286,824			127,285			121,607			473,064				337,619
Proceeds from sales, redemptions and maturities of other investments	296,976			317,518			269,998			242,795			425,410			614,494				636,535
Proceeds from redemptions and maturities of fixed maturity investments	273,223			174,718			214,184			169,843			207,086			447,941				370,980
Net settlements of derivative instruments	(2,063		)	(3,921		)	(40,464		)	(21,778		)	24,083			(5,984		)		45,174
Net (purchases) sales of short-term investments	(47,352		)	(397,851		)	480,752			(299,702		)	(238,866		)	(445,203		)		(304,460		)
Change in cash collateral related to securities lending	(5,253		)	180,946			(127,313		)	(9,220		)	24,403			175,693				(18,715		)
Acquisitions, net of cash	—			—			(1,971,809		)	(19,451		)	(1,460		)	—				(1,460		)
Purchases of fixed assets	(5,909		)	(5,194		)	(3,738		)	(3,281		)	(4,332		)	(11,103		)		(8,284		)
Change in other assets	(33,395		)	19,603			(42,089		)	(17,232		)	6,679			(13,792		)		13,416
Net cash provided by (used for) investing activities	(214,517		)	(121,878		)	(1,466,435		)	(899,440		)	(122,401		)	(336,395		)		(355,668		)
Financing Activities
Proceeds from issuance of preferred shares, net	—			—			—			434,899			—			—				—
Purchases of common shares under share repurchase program	—			—			—			—			—			—				(75,256		)
Proceeds from common shares issued, net	(2,848		)	(3,990		)	1,367			(2,298		)	(1,689		)	(6,838		)		(1,487		)
Proceeds from borrowings	—			—			1,340,741			—			46,000			—				46,000
Repayments of borrowings	(50,000		)	(22,000		)	(40,000		)	—			(105,000		)	(72,000		)		(179,171		)
Change in cash collateral related to securities lending	5,253			(180,946		)	127,313			9,220			(24,403		)	(175,693		)		18,715
Dividends paid to redeemable noncontrolling interests	(4,497		)	(4,497		)	(4,498		)	(4,497		)	(4,497		)	(8,994		)		(8,994		)
Other	(36,680		)	(5,018		)	(31,428		)	35,336			(31,338		)	(41,698		)		(2,223		)
Preferred dividends paid	(11,349		)	(11,218		)	(11,617		)	(5,484		)	(5,485		)	(22,567		)		(10,969		)
Net cash provided by (used for) financing activities	(100,121		)	(227,669		)	1,381,878			467,176			(126,412		)	(327,790		)		(213,385		)
Effects of exchange rate changes on foreign currency cash	5,255			2,241			(10,822		)	(1,426		)	(11,238		)	7,496				(8,906		)
Increase (decrease) in cash	36,566			(139,188		)	264,126			62,225			(41,370		)	(102,622		)		(36,735		)
Cash beginning of period	703,754			842,942			578,816			516,591			557,961			842,942				553,326
Cash end of period	$	740,320		$	703,754		$	842,942		$	578,816		$	516,591		$	740,320			$	516,591
Income taxes paid	$	3,224		$	711		$	9,879		$	14,123		$	24,115		$	3,935			$	26,619
Interest paid	$	52,206		$	5,829		$	28,054		$	3,710		$	27,711		$	58,035			$	31,524
Non-cash consideration paid in convertible non-voting common equivalent preferred shares	$	—		$	—		$	1,101,304		$	—		$	—		$	—			$	—
Net cash provided by operating activities, excluding the ‘other’ segment	$	274,093		$	146,194		$	278,827		$	420,873		$	152,934		$	420,287			$	410,213

7

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Overview

The Company classifies its businesses into three underwriting segments — insurance, reinsurance and mortgage — and two other operating segments — ‘other’ and corporate (non-underwriting). The Company’s Insurance, Reinsurance and Mortgage segments each have 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 and Chief Executive Officer of ACGL, the President and Chief Operating 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. Management measures segment performance for its three core underwriting segments based on underwriting income or loss. The Company does not manage its assets by underwriting segment and, accordingly, investment income is not allocated to each underwriting segment.

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. 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.

Insurance Segment

The insurance segment consists of the Company’s insurance underwriting units which offer specialty product lines on a worldwide basis. Product lines include:

• Construction and national accounts: primary and excess casualty coverages to middle and large accounts in the construction industry and a wide range of products for middle and large national accounts, specializing in loss sensitive primary casualty insurance programs (including large deductible, self-insured retention and retrospectively rated programs).

• Excess and surplus casualty: primary and excess casualty insurance coverages, including middle market energy business, and contract binding, which primarily provides casualty coverage through a network of appointed agents to small and medium risks.

• Lenders products: collateral protection, debt cancellation and service contract reimbursement products to banks, credit unions, automotive dealerships and original equipment manufacturers and other specialty programs that pertain to automotive lending and leasing.

• Professional lines: directors’ and officers’ liability, errors and omissions liability, employment practices liability, fiduciary liability, crime, professional indemnity and other financial related coverages for corporate, private equity, venture capital, real estate investment trust, limited partnership, financial institution and not-for-profit clients of all sizes and medical professional and general liability insurance coverages for the healthcare industry. The business is predominately written on a claims-made basis.

• Programs: primarily package policies, underwriting workers’ compensation and umbrella liability business in support of desirable package programs, targeting program managers with unique expertise and niche products offering general liability, commercial automobile, inland marine and property business with minimal catastrophe exposure.

• Property, energy, marine and aviation: primary and excess general property insurance coverages, including catastrophe-exposed property coverage, for commercial clients. Coverages for marine include hull, war, specie and liability. Aviation and stand alone terrorism are also offered.

• Travel, accident and health: specialty travel and accident and related insurance products for individual, group travelers, travel agents and suppliers, as well as accident and health, which provides accident, disability and medical plan insurance coverages for employer groups, medical plan members, students and other participant groups.

• Other: includes alternative market risks (including captive insurance programs), excess workers’ compensation and employer’s liability insurance coverages for qualified self-insured groups, associations and trusts, and contract and commercial surety coverages, including contract bonds (payment and performance bonds) primarily for medium and large contractors and commercial surety bonds for Fortune 1,000 companies and smaller transaction business programs.

8

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Overview

Reinsurance Segment

The reinsurance segment consists of the Company’s reinsurance underwriting units which offer specialty product lines on a worldwide basis. Product lines include:

• Casualty: provides coverage to ceding company clients on third party liability and workers’ compensation exposures from ceding company clients, primarily on a treaty basis. Exposures include, among others, executive assurance, professional liability, workers’ compensation, excess and umbrella liability, excess motor and healthcare business.

• Marine and aviation: provides coverage for energy, hull, cargo, specie, liability and transit, and aviation business, including airline and general aviation risks. Business written may also include space business, which includes coverages for satellite assembly, launch and operation for commercial space programs.

• Other specialty: provides coverage to ceding company clients for proportional motor and other lines including surety, accident and health, workers’ compensation catastrophe, agriculture, trade credit and political risk.

• Property catastrophe: provides protection for most catastrophic losses that are covered in the underlying policies written by reinsureds, including hurricane, earthquake, flood, tornado, hail and fire, and coverage for other perils on a case-by-case basis. Property catastrophe reinsurance provides coverage on an excess of loss basis when aggregate losses and loss adjustment expense from a single occurrence of a covered peril exceed the retention specified in the contract.

• Property excluding property catastrophe: provides coverage for both personal lines and commercial property exposures and principally covers buildings, structures, equipment and contents. The primary perils in this business include fire, explosion, collapse, riot, vandalism, wind, tornado, flood and earthquake. Business is assumed on both a proportional and excess of loss basis. In addition, facultative business is written which focuses on commercial property risks on an excess of loss basis.

• Other. includes life reinsurance business on both a proportional and non-proportional basis, casualty clash business and, in limited instances, non-traditional business which is intended to provide insurers with risk management solutions that complement traditional reinsurance.

Mortgage Segment

The mortgage segment includes the Company’s U.S. and international mortgage insurance and reinsurance operations as well as government sponsored enterprise (“GSE”) credit-risk sharing transactions. On December 31, 2016, the Company completed the acquisition of United Guaranty Corporation (“UGC”). The acquisition of UGC expanded the scale of Arch’s existing mortgage insurance businesses by combining UGC’s position as the market leader in the U.S. private mortgage insurance industry with Arch’s financial strength and history of innovation, further diversifying the Company’s business profile and customer base. Arch Mortgage Insurance Company, United Guaranty Residential Insurance Company and United Guaranty Mortgage Indemnity Company (combined “Arch MI U.S.”) are approved as eligible mortgage insurers by Fannie Mae and Freddie Mac.

Corporate (Non-Underwriting) Segment

The corporate (non-underwriting) segment results include net investment income, other income (loss), corporate expenses, UGC transaction costs and other, amortization of intangible assets, interest expense, dividends on the Company’s non-cumulative preferred shares, 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, net foreign exchange gains or losses and income taxes. Such amounts exclude the results of the ‘other’ segment.

Other Segment

The ‘other’ segment includes the results of Watford Holdings Ltd. and its subsidiary Watford Re Ltd., a multi-line Bermuda reinsurance company, which was launched in March 2014. Subsidiaries of the Company act as Watford Re’s reinsurance and insurance underwriting managers while HPS Investment Partners, LLC manages Watford Re’s non-investment grade credit portfolios and the Company manages Watford Re’s investment grade portfolios, all under long term services agreements. Pursuant to generally accepted accounting principles, Watford Re is considered a variable interest entity and the Company concluded that it is the primary beneficiary of Watford Re. As such, the Company consolidates the results of Watford Re in its consolidated financial statements, although it only owns approximately 11% of Watford Re’s common equity. Watford Re has its own management and board of directors that is responsible for its overall profitability. The portion of Watford’s earnings attributable to third party investors is recorded in the consolidated statements of income as ‘amounts attributable to noncontrolling interests.’ Management measures segment performance for the ‘other’ segment based on net income or loss.

9

Arch Capital Group Ltd. and Subsidiaries

Segment Information

(U.S. Dollars in thousands)	Three Months Ended
	June 30, 2017
	Insurance			Reinsurance			Mortgage			Sub-total (Core)			Other			Total
Gross premiums written (1)	$	743,902		$	453,186		$	336,226		$	1,533,142		$	152,813		$	1,609,659
Premiums ceded	(247,446		)	(115,262		)	(62,314		)	(424,850		)	(12,410		)	(360,964		)
Net premiums written	496,456			337,924			273,912			1,108,292			140,403			1,248,695
Change in unearned premiums	21,118			(23,222		)	(16,068		)	(18,172		)	10,351			(7,821		)
Net premiums earned	517,574			314,702			257,844			1,090,120			150,754			1,240,874
Other underwriting income (loss)	—			(279		)	4,277			3,998			824			4,822
Losses and loss adjustment expenses	(350,939		)	(207,606		)	(20,694		)	(579,239		)	(110,621		)	(689,860		)
Acquisition expenses	(78,872		)	(51,151		)	(25,666		)	(155,689		)	(34,747		)	(190,436		)
Other operating expenses	(92,267		)	(36,711		)	(32,150		)	(161,128		)	(8,853		)	(169,981		)
Underwriting income (loss)	$	(4,504	)	$	18,955		$	183,611		198,062			(2,643		)	195,419
Net investment income										92,520			18,604			111,124
Net realized gains (losses)										18,046			3,689			21,735
Net impairment losses recognized in earnings										(1,730		)	—			(1,730		)
Equity in net income (loss) of investment funds accounted for using the equity method										32,706			—			32,706
Other income (loss)										(1,994		)	—			(1,994		)
Corporate expenses (2)										(22,201		)	—			(22,201		)
UGC transaction costs and other (2)										(2,675		)	—			(2,675		)
Amortization of intangible assets										(30,824		)	—			(30,824		)
Interest expense										(25,912		)	(2,837		)	(28,749		)
Net foreign exchange gains (losses)										(37,821		)	(1,722		)	(39,543		)
Income before income taxes										218,177			15,091			233,268
Income tax expense										(34,169		)	—			(34,169		)
Net income										184,008			15,091			199,099
Dividends attributable to redeemable noncontrolling interests										—			(4,586		)	(4,586		)
Amounts attributable to nonredeemable noncontrolling interests										—			(9,346		)	(9,346		)
Net income available to Arch										184,008			1,159			185,167
Preferred dividends										(11,349		)	—			(11,349		)
Net income available to Arch common shareholders										$	172,659		$	1,159		$	173,818
Underwriting Ratios
Loss ratio	67.8		%	66.0		%	8.0		%	53.1		%	73.4		%	55.6		%
Acquisition expense ratio	15.2		%	16.3		%	10.0		%	14.3		%	23.0		%	15.3		%
Other operating expense ratio	17.8		%	11.7		%	12.5		%	14.8		%	5.9		%	13.7		%
Combined ratio	100.8		%	94.0		%	30.5		%	82.2		%	102.3		%	84.6		%
Net premiums written to gross premiums written	66.7		%	74.6		%	81.5		%	72.3		%	91.9		%	77.6		%
Total investable assets										$	19,173,709		$	1,932,558		$	21,106,267
Total assets										28,150,035			2,712,604			30,862,639
Total liabilities										19,374,536			1,506,024			20,880,560

(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) Certain expenses have been excluded from ‘corporate expenses’ and reflected in ‘UGC transaction costs and other.’ See ‘Comments on Regulation G’ for a further discussion of such items.

10

Arch Capital Group Ltd. and Subsidiaries

Segment Information

(U.S. Dollars in thousands)	Three Months Ended
	June 30, 2016
	Insurance			Reinsurance			Mortgage			Sub-total (Core)			Other			Total
Gross premiums written (1)	$	762,043		$	412,053		$	118,434		$	1,292,199		$	109,285		$	1,329,936
Premiums ceded	(246,875		)	(119,951		)	(6,969		)	(373,464		)	(4,457		)	(306,373		)
Net premiums written	515,168			292,102			111,465			918,735			104,828			1,023,563
Change in unearned premiums	12,482			(846		)	(44,953		)	(33,317		)	15,739			(17,578		)
Net premiums earned	527,650			291,256			66,512			885,418			120,567			1,005,985
Other underwriting income	—			20,118			4,137			24,255			969			25,224
Losses and loss adjustment expenses	(354,633		)	(146,091		)	(366		)	(501,090		)	(83,502		)	(584,592		)
Acquisition expenses	(77,312		)	(55,756		)	(5,964		)	(139,032		)	(33,645		)	(172,677		)
Other operating expenses	(91,440		)	(36,914		)	(22,847		)	(151,201		)	(6,113		)	(157,314		)
Underwriting income (loss)	$	4,265		$	72,613		$	41,472		118,350			(1,724		)	116,626
Net investment income										70,397			17,941			88,338
Net realized gains (losses)										40,927			27,291			68,218
Net impairment losses recognized in earnings										(5,343		)	—			(5,343		)
Equity in net income (loss) of investment funds accounted for using the equity method										8,737			—			8,737
Other income (loss)										(7		)	—			(7		)
Corporate expenses										(17,200		)	—			(17,200		)
Amortization of intangible assets										(4,880		)	—			(4,880		)
Interest expense										(12,432		)	(3,231		)	(15,663		)
Net foreign exchange gains (losses)										22,461			2,201			24,662
Income before income taxes										221,010			42,478			263,488
Income tax expense										(14,131		)	—			(14,131		)
Net income										206,879			42,478			249,357
Dividends attributable to redeemable noncontrolling interests										—			(4,586		)	(4,586		)
Amounts attributable to nonredeemable noncontrolling interests										—			(33,716		)	(33,716		)
Net income available to Arch										206,879			4,176			211,055
Preferred dividends										(5,485		)	—			(5,485		)
Net income available to Arch common shareholders										$	201,394		$	4,176		$	205,570
Underwriting Ratios
Loss ratio	67.2		%	50.2		%	0.6		%	56.6		%	69.3		%	58.1		%
Acquisition expense ratio	14.7		%	19.1		%	9.0		%	15.7		%	27.9		%	17.2		%
Other operating expense ratio	17.3		%	12.7		%	34.4		%	17.1		%	5.1		%	15.6		%
Combined ratio	99.2		%	82.0		%	44.0		%	89.4		%	102.3		%	90.9		%
Net premiums written to gross premiums written	67.6		%	70.9		%	94.1		%	71.1		%	95.9		%	77.0		%
Total investable assets										$	15,178,308		$	1,703,431		$	16,881,739
Total assets										22,166,843			2,206,735			24,373,578
Total liabilities										15,613,641			1,100,399			16,714,040

(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.

11

Arch Capital Group Ltd. and Subsidiaries

Segment Information

(U.S. Dollars in thousands)	Six Months Ended
	June 30, 2017
	Insurance			Reinsurance			Mortgage			Sub-total (Core)			Other			Total
Gross premiums written (1)	$	1,526,183		$	928,968		$	684,849		$	3,139,828		$	306,933		$	3,267,649
Premiums ceded	(481,541		)	(281,354		)	(136,239		)	(898,962		)	(22,844		)	(742,694		)
Net premiums written	1,044,642			647,614			548,610			2,240,866			284,089			2,524,955
Change in unearned premiums	(21,422		)	(88,061		)	(46,243		)	(155,726		)	(11,338		)	(167,064		)
Net premiums earned	1,023,220			559,553			502,367			2,085,140			272,751			2,357,891
Other underwriting income (loss)	—			(585		)	8,400			7,815			1,640			9,455
Losses and loss adjustment expenses	(683,580		)	(313,060		)	(49,759		)	(1,046,399		)	(196,031		)	(1,242,430		)
Acquisition expenses	(153,740		)	(97,298		)	(54,432		)	(305,470		)	(67,255		)	(372,725		)
Other operating expenses	(180,393		)	(74,244		)	(74,020		)	(328,657		)	(16,043		)	(344,700		)
Underwriting income (loss)	$	5,507		$	74,366		$	332,556		412,429			(4,938		)	407,491
Net investment income										188,332			40,666			228,998
Net realized gains (losses)										46,558			9,330			55,888
Net impairment losses recognized in earnings										(3,537		)	—			(3,537		)
Equity in net income (loss) of investment funds accounted for using the equity method										80,794			—			80,794
Other income (loss)										(2,776		)	—			(2,776		)
Corporate expenses (2)										(34,409		)	—			(34,409		)
UGC transaction costs and other (2)										(18,259		)	—			(18,259		)
Amortization of intangible assets										(62,118		)	—			(62,118		)
Interest expense										(51,668		)	(5,757		)	(57,425		)
Net foreign exchange gains (losses)										(57,666		)	(1,281		)	(58,947		)
Income before income taxes										497,680			38,020			535,700
Income tax expense										(62,566		)	—			(62,566		)
Net income										435,114			38,020			473,134
Dividends attributable to redeemable noncontrolling interests										—			(9,170		)	(9,170		)
Amounts attributable to nonredeemable noncontrolling interests										—			(25,670		)	(25,670		)
Net income available to Arch										435,114			3,180			438,294
Preferred dividends										(22,567		)	—			(22,567		)
Net income available to Arch common shareholders										$	412,547		$	3,180		$	415,727
Underwriting Ratios
Loss ratio	66.8		%	55.9		%	9.9		%	50.2		%	71.9		%	52.7		%
Acquisition expense ratio	15.0		%	17.4		%	10.8		%	14.6		%	24.7		%	15.8		%
Other operating expense ratio	17.6		%	13.3		%	14.7		%	15.8		%	5.9		%	14.6		%
Combined ratio	99.4		%	86.6		%	35.4		%	80.6		%	102.5		%	83.1		%
Net premiums written to gross premiums written	68.4		%	69.7		%	80.1		%	71.4		%	92.6		%	77.3		%

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

(2) Certain expenses have been excluded from ‘corporate expenses’ and reflected in ‘UGC transaction costs and other.’ See ‘Comments on Regulation G’ for a further discussion of such items.

12

Arch Capital Group Ltd. and Subsidiaries

Segment Information

(U.S. Dollars in thousands)	Six Months Ended
	June 30, 2016
	Insurance			Reinsurance			Mortgage			Sub-total (Core)			Other			Total
Gross premiums written (1)	$	1,560,596		$	893,443		$	229,714		$	2,683,260		$	257,891		$	2,767,902
Premiums ceded	(495,664		)	(280,517		)	(11,736		)	(787,424		)	(8,929		)	(623,104		)
Net premiums written	1,064,932			612,926			217,978			1,895,836			248,962			2,144,798
Change in unearned premiums	(24,193		)	(60,462		)	(89,701		)	(174,356		)	(12,878		)	(187,234		)
Net premiums earned	1,040,739			552,464			128,277			1,721,480			236,084			1,957,564
Other underwriting income	—			20,443			7,930			28,373			1,898			30,271
Losses and loss adjustment expenses	(678,242		)	(257,689		)	(8,995		)	(944,926		)	(162,615		)	(1,107,541		)
Acquisition expenses	(151,660		)	(110,514		)	(11,757		)	(273,931		)	(66,584		)	(340,515		)
Other operating expenses	(176,498		)	(73,172		)	(46,341		)	(296,011		)	(11,451		)	(307,462		)
Underwriting income (loss)	$	34,339		$	131,532		$	69,114		234,985			(2,668		)	232,317
Net investment income										140,806			41,267			182,073
Net realized gains (losses)										72,789			32,753			105,542
Net impairment losses recognized in earnings										(12,982		)	—			(12,982		)
Equity in net income (loss) of investment funds accounted for using the equity method										15,392			—			15,392
Other income (loss)										(32		)	—			(32		)
Corporate expenses										(26,583		)	—			(26,583		)
Amortization of intangible assets										(9,628		)	—			(9,628		)
Interest expense										(25,059		)	(6,711		)	(31,770		)
Net foreign exchange gains (losses)										420			676			1,096
Income before income taxes										390,108			65,317			455,425
Income tax expense										(30,441		)	—			(30,441		)
Net income										359,667			65,317			424,984
Dividends attributable to redeemable noncontrolling interests										—			(9,173		)	(9,173		)
Amounts attributable to nonredeemable noncontrolling interests										—			(49,958		)	(49,958		)
Net income available to Arch										359,667			6,186			365,853
Preferred dividends										(10,969		)	—			(10,969		)
Net income available to Arch common shareholders										$	348,698		$	6,186		$	354,884
Underwriting Ratios
Loss ratio	65.2		%	46.6		%	7.0		%	54.9		%	68.9		%	56.6		%
Acquisition expense ratio	14.6		%	20.0		%	9.2		%	15.9		%	28.2		%	17.4		%
Other operating expense ratio	17.0		%	13.2		%	36.1		%	17.2		%	4.9		%	15.7		%
Combined ratio	96.8		%	79.8		%	52.3		%	88.0		%	102.0		%	89.7		%
Net premiums written to gross premiums written	68.2		%	68.6		%	94.9		%	70.7		%	96.5		%	77.5		%

(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.

13

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Insurance Segment

(U.S. Dollars in thousands)	Three Months Ended															Six Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			June 30,			June 30,
	2017			2017			2016			2016			2016			2017			2016
Gross premiums written	$	743,902		$	782,281		$	707,519		$	758,934		$	762,043		$	1,526,183		$	1,560,596
Premiums ceded	(247,446		)	(234,095		)	(241,658		)	(217,446		)	(246,875		)	(481,541		)	(495,664		)
Net premiums written	496,456			548,186			465,861			541,488			515,168			1,044,642			1,064,932
Change in unearned premiums	21,118			(42,540		)	48,226			(22,410		)	12,482			(21,422		)	(24,193		)
Net premiums earned	517,574			505,646			514,087			519,078			527,650			1,023,220			1,040,739
Other underwriting income	—			—			—			—			—			—			—
Losses and loss adjustment expenses	(350,939		)	(332,641		)	(348,226		)	(332,845		)	(354,633		)	(683,580		)	(678,242		)
Acquisition expenses	(78,872		)	(74,868		)	(75,244		)	(77,146		)	(77,312		)	(153,740		)	(151,660		)
Other operating expenses	(92,267		)	(88,126		)	(87,149		)	(86,613		)	(91,440		)	(180,393		)	(176,498		)
Underwriting income (loss)	$	(4,504	)	$	10,011		$	3,468		$	22,474		$	4,265		$	5,507		$	34,339
Underwriting Ratios
Loss ratio	67.8		%	65.8		%	67.7		%	64.1		%	67.2		%	66.8		%	65.2		%
Acquisition expense ratio	15.2		%	14.8		%	14.6		%	14.9		%	14.7		%	15.0		%	14.6		%
Other operating expense ratio	17.8		%	17.4		%	17.0		%	16.7		%	17.3		%	17.6		%	17.0		%
Combined ratio	100.8		%	98.0		%	99.3		%	95.7		%	99.2		%	99.4		%	96.8		%
Catastrophic activity and prior year development:
Current accident year catastrophic events, net of
reinsurance and reinstatement premiums	1.6		%	0.5		%	4.6		%	0.3		%	3.9		%	1.1		%	2.0		%
Net (favorable) adverse development in prior year loss
reserves, net of related adjustments	(0.2		)%	(0.3		)%	(1.5		)%	(2.3		)%	(0.8		)%	(0.2		)%	(0.8		)%
Combined ratio excluding catastrophic activity and prior year development (1)	99.4		%	97.8		%	96.2		%	97.7		%	96.1		%	98.5		%	95.6		%
Net premiums written to gross premiums written	66.7		%	70.1		%	65.8		%	71.3		%	67.6		%	68.4		%	68.2		%

(1) See ‘Comments on Regulation G’ for further discussion.

14

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Insurance Segment

(U.S. Dollars in thousands)	Three Months Ended																				Six Months Ended
	June 30,				March 31,				December 31,				September 30,				June 30,				June 30,				June 30,
	2017				2017				2016				2016				2016				2017				2016
Net premiums written
Professional lines (1)	$	110,784	22.3	%	$	108,468	19.8	%	$	103,965	22.3	%	$	119,198	22.0	%	$	107,519	20.9	%	$	219,252	21.0	%	$	216,986	20.4	%
Programs	93,428		18.8	%	99,957		18.2	%	73,953		15.9	%	91,165		16.8	%	75,420		14.6	%	193,385		18.5	%	165,204		15.5	%
Construction and national accounts	73,474		14.8	%	99,977		18.2	%	74,158		15.9	%	65,105		12.0	%	85,260		16.5	%	173,451		16.6	%	189,734		17.8	%
Travel, accident and health	52,690		10.6	%	65,528		12.0	%	49,208		10.6	%	63,453		11.7	%	54,456		10.6	%	118,218		11.3	%	111,719		10.5	%
Property, energy, marine and aviation	46,031		9.3	%	40,104		7.3	%	33,115		7.1	%	42,092		7.8	%	50,194		9.7	%	86,135		8.2	%	100,169		9.4	%
Excess and surplus casualty (2)	45,222		9.1	%	45,832		8.4	%	46,719		10.0	%	54,075		10.0	%	60,412		11.7	%	91,054		8.7	%	114,069		10.7	%
Lenders products	21,459		4.3	%	24,705		4.5	%	26,979		5.8	%	28,633		5.3	%	25,254		4.9	%	46,164		4.4	%	50,038		4.7	%
Other (3)	53,368		10.7	%	63,615		11.6	%	57,764		12.4	%	77,767		14.4	%	56,653		11.0	%	116,983		11.2	%	117,013		11.0	%
Total	$	496,456	100.0	%	$	548,186	100.0	%	$	465,861	100.0	%	$	541,488	100.0	%	$	515,168	100.0	%	$	1,044,642	100.0	%	$	1,064,932	100.0	%
Client location
United States	$	413,537	83.3	%	$	456,579	83.3	%	$	385,026	82.6	%	$	446,403	82.4	%	$	436,958	84.8	%	$	870,116	83.3	%	$	886,986	83.3	%
Europe	40,591		8.2	%	56,053		10.2	%	35,588		7.6	%	38,432		7.1	%	34,318		6.7	%	96,644		9.3	%	99,403		9.3	%
Asia and Pacific	19,171		3.9	%	18,975		3.5	%	26,053		5.6	%	28,507		5.3	%	22,855		4.4	%	38,146		3.7	%	39,192		3.7	%
Other	23,157		4.7	%	16,579		3.0	%	19,194		4.1	%	28,146		5.2	%	21,037		4.1	%	39,736		3.8	%	39,351		3.7	%
Total	$	496,456	100.0	%	$	548,186	100.0	%	$	465,861	100.0	%	$	541,488	100.0	%	$	515,168	100.0	%	$	1,044,642	100.0	%	$	1,064,932	100.0	%
Underwriting location
United States	$	404,137	81.4	%	$	448,616	81.8	%	$	378,121	81.2	%	$	442,422	81.7	%	$	423,465	82.2	%	$	852,753	81.6	%	$	869,665	81.7	%
Europe	75,254		15.2	%	88,345		16.1	%	73,287		15.7	%	85,279		15.7	%	74,373		14.4	%	163,599		15.7	%	168,468		15.8	%
Other	17,065		3.4	%	11,225		2.0	%	14,453		3.1	%	13,787		2.5	%	17,330		3.4	%	28,290		2.7	%	26,799		2.5	%
Total	$	496,456	100.0	%	$	548,186	100.0	%	$	465,861	100.0	%	$	541,488	100.0	%	$	515,168	100.0	%	$	1,044,642	100.0	%	$	1,064,932	100.0	%
Net premiums earned							��
Professional lines (1)	$	108,375	20.9	%	$	108,638	21.5	%	$	107,277	20.9	%	$	110,614	21.3	%	$	108,556	20.6	%	$	217,013	21.2	%	$	213,500	20.5	%
Programs	87,582		16.9	%	85,180		16.8	%	83,730		16.3	%	84,889		16.4	%	90,595		17.2	%	172,762		16.9	%	189,096		18.2	%
Construction and national accounts	80,848		15.6	%	77,423		15.3	%	80,525		15.7	%	80,090		15.4	%	84,414		16.0	%	158,271		15.5	%	161,457		15.5	%
Travel, accident and health	63,436		12.3	%	58,481		11.6	%	54,706		10.6	%	57,097		11.0	%	59,821		11.3	%	121,917		11.9	%	107,366		10.3	%
Property, energy, marine and aviation	41,423		8.0	%	38,078		7.5	%	47,521		9.2	%	45,304		8.7	%	47,076		8.9	%	79,501		7.8	%	96,113		9.2	%
Excess and surplus casualty (2)	48,850		9.4	%	51,007		10.1	%	52,239		10.2	%	54,687		10.5	%	57,155		10.8	%	99,857		9.8	%	112,120		10.8	%
Lenders products	24,562		4.7	%	24,099		4.8	%	26,018		5.1	%	25,090		4.8	%	23,007		4.4	%	48,661		4.8	%	47,409		4.6	%
Other (3)	62,498		12.1	%	62,740		12.4	%	62,071		12.1	%	61,307		11.8	%	57,026		10.8	%	125,238		12.2	%	113,678		10.9	%
Total	$	517,574	100.0	%	$	505,646	100.0	%	$	514,087	100.0	%	$	519,078	100.0	%	$	527,650	100.0	%	$	1,023,220	100.0	%	$	1,040,739	100.0	%

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

(2)    Includes casualty and contract binding business.

(3)    Includes alternative markets, excess workers’ compensation and surety business.

15

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Reinsurance Segment

(U.S. Dollars in thousands)	Three Months Ended															Six Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			June 30,			June 30,
	2017			2017			2016			2016			2016			2017			2016
Gross premiums written	$	453,186		$	475,782		$	276,593		$	324,361		$	412,053		$	928,968		$	893,443
Premiums ceded	(115,262		)	(166,092		)	(70,473		)	(89,551		)	(119,951		)	(281,354		)	(280,517		)
Net premiums written	337,924			309,690			206,120			234,810			292,102			647,614			612,926
Change in unearned premiums	(23,222		)	(64,839		)	45,721			17,117			(846		)	(88,061		)	(60,462		)
Net premiums earned	314,702			244,851			251,841			251,927			291,256			559,553			552,464
Other underwriting income	(279		)	(306		)	13,744			2,216			20,118			(585		)	20,443
Losses and loss adjustment expenses	(207,606		)	(105,454		)	(112,149		)	(105,924		)	(146,091		)	(313,060		)	(257,689		)
Acquisition expenses	(51,151		)	(46,147		)	(51,552		)	(50,192		)	(55,756		)	(97,298		)	(110,514		)
Other operating expenses	(36,711		)	(37,533		)	(34,055		)	(35,389		)	(36,914		)	(74,244		)	(73,172		)
Underwriting income	$	18,955		$	55,411		$	67,829		$	62,638		$	72,613		$	74,366		$	131,532
Underwriting Ratios
Loss ratio	66.0		%	43.1		%	44.5		%	42.0		%	50.2		%	55.9		%	46.6		%
Acquisition expense ratio	16.3		%	18.8		%	20.5		%	19.9		%	19.1		%	17.4		%	20.0		%
Other operating expense ratio	11.7		%	15.3		%	13.5		%	14.0		%	12.7		%	13.3		%	13.2		%
Combined ratio	94.0		%	77.2		%	78.5		%	75.9		%	82.0		%	86.6		%	79.8		%
Catastrophic activity and prior year development:
Current accident year catastrophic events, net of
reinsurance and reinstatement premiums	5.2		%	4.0		%	4.1		%	3.5		%	5.4		%	4.7		%	3.5		%
Net (favorable) adverse development in prior year loss
reserves, net of related adjustments	(12.3		)%	(24.4		)%	(16.7		)%	(24.0		)%	(21.7		)%	(17.6		)%	(19.9		)%
Combined ratio excluding catastrophic activity and prior year development (1)	101.1		%	97.6		%	91.1		%	96.4		%	98.3		%	99.5		%	96.2		%
Net premiums written to gross premiums written	74.6		%	65.1		%	74.5		%	72.4		%	70.9		%	69.7		%	68.6		%

(1) See ‘Comments on Regulation G’ for further discussion.

16

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Reinsurance Segment

(U.S. Dollars in thousands)	Three Months Ended																					Six Months Ended
	June 30,				March 31,					December 31,				September 30,				June 30,				June 30,				June 30,
	2017				2017					2016				2016				2016				2017				2016
Net premiums written
Other specialty (1)	$	155,328	46.0	%	$	114,418		36.9	%	$	59,920	29.1	%	$	74,169	31.6	%	$	113,943	39.0	%	$	269,746	41.7	%	$	214,763	35.0	%
Property excluding property catastrophe (2)	69,115		20.5	%	75,387			24.3	%	53,261		25.8	%	70,733		30.1	%	69,831		23.9	%	144,502		22.3	%	143,554		23.4	%
Casualty (3)	63,054		18.7	%	110,620			35.7	%	57,972		28.1	%	59,242		25.2	%	61,555		21.1	%	173,674		26.8	%	188,038		30.7	%
Property catastrophe	37,127		11.0	%	(7,477		)	(2.4	)%	16,520		8.0	%	19,793		8.4	%	41,771		14.3	%	29,650		4.6	%	39,476		6.4	%
Marine and aviation	8,932		2.6	%	9,541			3.1	%	13,352		6.5	%	5,435		2.3	%	1,463		0.5	%	18,473		2.9	%	19,003		3.1	%
Other (4)	4,368		1.3	%	7,201			2.3	%	5,095		2.5	%	5,438		2.3	%	3,539		1.2	%	11,569		1.8	%	8,092		1.3	%
Total	$	337,924	100.0	%	$	309,690		100.0	%	$	206,120	100.0	%	$	234,810	100.0	%	$	292,102	100.0	%	$	647,614	100.0	%	$	612,926	100.0	%
Pro rata	$	200,893	59.4	%	$	129,016		41.7	%	$	152,951	74.2	%	$	147,280	62.7	%	$	146,231	50.1	%	$	329,909	50.9	%	$	258,440	42.2	%
Excess of loss	137,031		40.6	%	180,674			58.3	%	53,169		25.8	%	87,530		37.3	%	145,871		49.9	%	317,705		49.1	%	354,486		57.8	%
Total	$	337,924	100.0	%	$	309,690		100.0	%	$	206,120	100.0	%	$	234,810	100.0	%	$	292,102	100.0	%	$	647,614	100.0	%	$	612,926	100.0	%
Client location
United States	$	114,481	33.9	%	$	113,259		36.6	%	$	75,801	36.8	%	$	112,007	47.7	%	$	126,449	43.3	%	$	227,740	35.2	%	$	260,955	42.6	%
Europe	139,479		41.3	%	142,952			46.2	%	57,445		27.9	%	57,207		24.4	%	90,688		31.0	%	282,431		43.6	%	222,516		36.3	%
Bermuda	24,869		7.4	%	13,109			4.2	%	24,481		11.9	%	14,416		6.1	%	14,685		5.0	%	37,978		5.9	%	35,450		5.8	%
Asia and Pacific	31,237		9.2	%	18,427			6.0	%	26,227		12.7	%	28,794		12.3	%	40,090		13.7	%	49,664		7.7	%	56,800		9.3	%
Other	27,858		8.2	%	21,943			7.1	%	22,166		10.8	%	22,386		9.5	%	20,190		6.9	%	49,801		7.7	%	37,205		6.1	%
Total	$	337,924	100.0	%	$	309,690		100.0	%	$	206,120	100.0	%	$	234,810	100.0	%	$	292,102	100.0	%	$	647,614	100.0	%	$	612,926	100.0	%
Underwriting location
Bermuda	$	135,602	40.1	%	$	42,183		13.6	%	$	59,921	29.1	%	$	60,651	25.8	%	$	108,638	37.2	%	$	177,785	27.5	%	$	157,053	25.6	%
United States	102,692		30.4	%	117,572			38.0	%	85,597		41.5	%	106,400		45.3	%	100,436		34.4	%	220,264		34.0	%	240,686		39.3	%
Europe	95,906		28.4	%	145,461			47.0	%	54,376		26.4	%	59,497		25.3	%	71,804		24.6	%	241,367		37.3	%	194,542		31.7	%
Other	3,724		1.1	%	4,474			1.4	%	6,226		3.0	%	8,262		3.5	%	11,224		3.8	%	8,198		1.3	%	20,645		3.4	%
Total	$	337,924	100.0	%	$	309,690		100.0	%	$	206,120	100.0	%	$	234,810	100.0	%	$	292,102	100.0	%	$	647,614	100.0	%	$	612,926	100.0	%
Net premiums earned
Other specialty (1)	$	141,565	45.0	%	$	69,965		28.6	%	$	69,566	27.6	%	$	76,686	30.4	%	$	109,493	37.6	%	$	211,530	37.8	%	$	183,742	33.3	%
Property excluding property catastrophe (2)	62,884		20.0	%	69,852			28.5	%	72,028		28.6	%	72,550		28.8	%	65,487		22.5	%	132,736		23.7	%	137,440		24.9	%
Casualty (3)	79,903		25.4	%	72,968			29.8	%	74,536		29.6	%	69,414		27.6	%	80,157		27.5	%	152,871		27.3	%	156,210		28.3	%
Property catastrophe	15,759		5.0	%	16,177			6.6	%	18,445		7.3	%	17,582		7.0	%	19,823		6.8	%	31,936		5.7	%	37,776		6.8	%
Marine and aviation	9,986		3.2	%	9,490			3.9	%	11,806		4.7	%	10,336		4.1	%	12,559		4.3	%	19,476		3.5	%	30,437		5.5	%
Other (4)	4,605		1.5	%	6,399			2.6	%	5,460		2.2	%	5,359		2.1	%	3,737		1.3	%	11,004		2.0	%	6,859		1.2	%
Total	$	314,702	100.0	%	$	244,851		100.0	%	$	251,841	100.0	%	$	251,927	100.0	%	$	291,256	100.0	%	$	559,553	100.0	%	$	552,464	100.0	%
Pro rata	$	181,988	57.8	%	$	133,092		54.4	%	$	135,711	53.9	%	$	132,649	52.7	%	$	153,933	52.9	%	$	315,080	56.3	%	$	293,626	53.1	%
Excess of loss	132,714		42.2	%	111,759			45.6	%	116,130		46.1	%	119,278		47.3	%	137,323		47.1	%	244,473		43.7	%	258,838		46.9	%
Total	$	314,702	100.0	%	$	244,851		100.0	%	$	251,841	100.0	%	$	251,927	100.0	%	$	291,256	100.0	%	$	559,553	100.0	%	$	552,464	100.0	%

(1)    Includes proportional motor, surety, accident and health, workers’ compensation catastrophe, agriculture, trade credit and other.        (2)  Includes facultative business.    

(3)      Includes executive assurance, professional liability, workers’ compensation, excess motor, healthcare and other.                (4) Includes life, casualty clash and other.

17

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Mortgage Segment

(U.S. Dollars in thousands)	Three Months Ended															Six Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			June 30,			June 30,
	2017			2017			2016			2016			2016			2017			2016
Gross premiums written	$	336,226		$	348,623		$	138,285		$	131,726		$	118,434		$	684,849		$	229,714
Premiums ceded	(62,314		)	(73,925		)	(45,341		)	(51,182		)	(6,969		)	(136,239		)	(11,736		)
Net premiums written	273,912			274,698			92,944			80,544			111,465			548,610			217,978
Change in unearned premiums	(16,068		)	(30,175		)	(11,467		)	(3,582		)	(44,953		)	(46,243		)	(89,701		)
Net premiums earned	257,844			244,523			81,477			76,962			66,512			502,367			128,277
Other underwriting income (1)	4,277			4,123			4,354			4,740			4,137			8,400			7,930
Losses and loss adjustment expenses	(20,694		)	(29,065		)	(8,841		)	(11,107		)	(366		)	(49,759		)	(8,995		)
Acquisition expenses	(25,666		)	(28,766		)	(4,843		)	(5,190		)	(5,964		)	(54,432		)	(11,757		)
Other operating expenses	(32,150		)	(41,870		)	(26,082		)	(24,249		)	(22,847		)	(74,020		)	(46,341		)
Underwriting income	$	183,611		$	148,945		$	46,065		$	41,156		$	41,472		$	332,556		$	69,114
Underwriting Ratios
Loss ratio	8.0		%	11.9		%	10.9		%	14.4		%	0.6		%	9.9		%	7.0		%
Acquisition expense ratio	10.0		%	11.8		%	5.9		%	6.7		%	9.0		%	10.8		%	9.2		%
Other operating expense ratio	12.5		%	17.1		%	32.0		%	31.5		%	34.4		%	14.7		%	36.1		%
Combined ratio	30.5		%	40.8		%	48.8		%	52.6		%	44.0		%	35.4		%	52.3		%
Net (favorable) adverse development in prior year loss
reserves, net of related adjustments	(11.5		)%	(9.6		)%	(6.0		)%	(3.2		)%	(16.6		)%	(10.6		)%	(10.8		)%
Combined ratio excluding prior year development (2)	42.0		%	50.4		%	54.8		%	55.8		%	60.6		%	46.0		%	63.1		%
Net premiums written to gross premiums written	81.5		%	78.8		%	67.2		%	61.1		%	94.1		%	80.1		%	94.9		%
Net premiums written by client location
United States	$	253,456		$	241,136		$	80,957		$	77,488		$	66,261		$	494,592		$	122,064
Other	20,456			33,562			11,987			3,056			45,204			54,018			95,914
Total	$	273,912		$	274,698		$	92,944		$	80,544		$	111,465		$	548,610		$	217,978
United States %	92.5		%	87.8		%	87.1		%	96.2		%	59.4		%	90.2		%	56.0		%
Other %	7.5		%	12.2		%	12.9		%	3.8		%	40.6		%	9.8		%	44.0		%
Net premiums written by underwriting location
United States	$	227,266		$	216,729		$	58,818		$	50,236		$	42,442		$	443,995		$	77,772
Other	46,646			57,969			34,126			30,308			69,023			104,615			140,206
Total	$	273,912		$	274,698		$	92,944		$	80,544		$	111,465		$	548,610		$	217,978
United States %	83.0		%	78.9		%	63.3		%	62.4		%	38.1		%	80.9		%	35.7		%
Other %	17.0		%	21.1		%	36.7		%	37.6		%	61.9		%	19.1		%	64.3		%

(1)     Primarily related to income earned on various risk-sharing products offered to government sponsored enterprises and mortgage lenders.

(2)    See ‘Comments on Regulation G’ for further discussion.

18

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Mortgage Segment

(U.S. Dollars in millions)	June 30, 2017					March 31, 2017					December 31, 2016					September 30, 2016
Insurance In Force (IIF) (1)
U.S. primary mortgage insurance	$	244,235		73.4	%	$	237,769		73.1	%	$	234,518		74.3	%	$	40,258		34.7	%
Mortgage reinsurance	26,120			7.8	%	25,846			7.9	%	24,315			7.7	%	22,071			19.0	%
Other (2)	62,503			18.8	%	61,596			18.9	%	56,776			18.0	%	53,826			46.3	%
Total	$	332,858		100.0	%	$	325,211		100.0	%	$	315,609		100.0	%	$	116,155		100.0	%
Risk In Force (RIF) (3)
U.S. primary mortgage insurance	$	62,362		92.6	%	$	60,591		92.5	%	$	59,712		92.7	%	$	10,168		68.6	%
Mortgage reinsurance	2,453			3.6	%	2,494			3.8	%	2,489			3.9	%	2,557			17.2	%
Other (2)	2,517			3.7	%	2,409			3.7	%	2,242			3.5	%	2,104			14.2	%
Total	$	67,332		100.0	%	$	65,494		100.0	%	$	64,443		100.0	%	$	14,829		100.0	%
Supplemental disclosures for U.S. primary mortgage insurance:
Total RIF by credit quality (FICO score):
>=740	$	36,378		58.3	%	$	35,396		58.4	%	$	34,867		58.4	%	$	5,817		57.2	%
680-739	20,122			32.3	%	19,343			31.9	%	18,976			31.8	%	3,425			33.7	%
620-679	5,118			8.2	%	5,065			8.4	%	5,050			8.5	%	834			8.2	%
<620	744			1.2	%	787			1.3	%	819			1.4	%	92			0.9	%
Total	$	62,362		100.0	%	$	60,591		100.0	%	$	59,712		100.0	%	$	10,168		100.0	%
Weighted average FICO score	743					743					743					742
Total RIF by Loan-To-Value (LTV):
95.01% and above	$	5,983		9.6	%	$	5,808		9.6	%	$	5,781		9.7	%	$	1,221		12.0	%
90.01% to 95.00%	34,718			55.7	%	33,617			55.5	%	32,986			55.2	%	5,430			53.4	%
85.01% to 90.00%	18,810			30.2	%	18,346			30.3	%	18,140			30.4	%	2,982			29.3	%
85.00% and below	2,851			4.6	%	2,820			4.7	%	2,805			4.7	%	535			5.3	%
Total	$	62,362		100.0	%	$	60,591		100.0	%	$	59,712		100.0	%	$	10,168		100.0	%
Weighted average LTV	92.8		%			92.9		%			92.9		%			92.9		%
Total RIF by State:
Texas	$	5,075		8.1	%	$	4,995		8.2	%	$	4,961		8.3	%	$	583		5.7	%
California	3,524			5.7	%	3,333			5.5	%	3,222			5.4	%	865			8.5	%
Virginia	2,691			4.3	%	2,625			4.3	%	2,586			4.3	%	377			3.7	%
Florida	2,622			4.2	%	2,467			4.1	%	2,367			4.0	%	544			5.4	%
North Carolina	2,346			3.8	%	2,278			3.8	%	2,245			3.8	%	217			2.1	%
Washington	2,311			3.7	%	2,313			3.8	%	2,331			3.9	%	302			3.0	%
Georgia	2,239			3.6	%	2,153			3.6	%	2,111			3.5	%	301			3.0	%
Maryland	2,160			3.5	%	2,107			3.5	%	2,080			3.5	%	299			2.9	%
Illinois	2,157			3.5	%	2,109			3.5	%	2,090			3.5	%	348			3.4	%
Minnesota	2,072			3.3	%	2,003			3.3	%	1,986			3.3	%	388			3.8	%
Others	35,165			56.4	%	34,208			56.5	%	33,733			56.5	%	5,944			58.5	%
Total	$	62,362		100.0	%	$	60,591		100.0	%	$	59,712		100.0	%	$	10,168		100.0	%
Weighted average coverage (end of period RIF divided by IIF)	25.5		%			25.5		%			25.5		%			25.3		%
U.S. mortgage insurance total RIF, net of reinsurance (4)	$	45,774				$	43,606				$	42,183				$	8,918
Analysts’ persistency (5)	78.1		%			76.6		%			76.1		%			75.4		%
Risk-to-capital ratio -- Arch MI U.S. (6)	11.7:1					12.0:1					12.4:1					15.4:1
PMIER sufficiency ratio -- Arch MI U.S. (7)	122		%			122		%			116		%

(1)    The aggregate dollar amount of each insured mortgage loan’s current principal balance.         (4)    Total RIF for the U.S. mortgage insurance operations (see note 3) after external reinsurance.

(2) Includes GSE credit risk-sharing transactions and international insurance business.        (5)    Represents the % of IIF at the beginning of a 12-month period that remained in force at the end of the period.

(3) The aggregate dollar amount of each insured mortgage loan’s current principal balance multiplied    (6)    Represents total current (non-delinquent) RIF, net of reinsurance, divided by total statutory capital        

by the insurance coverage percentage specified in the policy for insurance policies issued and        (estimate for June 30, 2017).

after contract limits and/or loss ratio caps for risk-sharing or reinsurance transactions.        (7)    Calculated as available assets divided by required assets as defined within PMIERs (estimate for June 30, 2017).

19

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Mortgage Segment

(U.S. Dollars in millions, except policy/loan/claim count)	Three Months Ended																				Six Months Ended
	June 30, 2017					March 31, 2017					December 31, 2016					September 30, 2016					June 30, 2017
Supplemental disclosures for U.S. primary mortgage insurance:
Total new insurance written (NIW) (1)	$	17,303				$	12,660				$	8,788				$	8,753				$	29,963
Total NIW by credit quality (FICO score):
>=740	$	9,814		56.7	%	$	7,184		56.7	%	$	5,181		59.0	%	$	5,187		59.3	%	$	16,998		56.7	%
680-739	6,274			36.3	%	4,615			36.5	%	3,124			35.5	%	3,074			35.1	%	10,889			36.3	%
620-679	1,215			7.0	%	861			6.8	%	483			5.5	%	492			5.6	%	2,076			6.9	%
Total	$	17,303		100.0	%	$	12,660		100.0	%	$	8,788		100.0	%	$	8,753		100.0	%	$	29,963		100.0	%
Total NIW by LTV:
95.01% and above	$	1,700		9.8	%	$	972		7.7	%	$	543		6.2	%	$	507		5.8	%	$	2,672		8.9	%
90.01% to 95.00%	8,372			48.4	%	5,985			47.3	%	4,175			47.5	%	4,261			48.7	%	14,357			47.9	%
85.01% to 90.00%	5,462			31.6	%	4,061			32.1	%	2,815			32.0	%	2,883			32.9	%	9,523			31.8	%
85.01% and below	1,769			10.2	%	1,642			13.0	%	1,255			14.3	%	1,102			12.6	%	3,411			11.4	%
Total	$	17,303		100.0	%	$	12,660		100.0	%	$	8,788		100.0	%	$	8,753		100.0	%	$	29,963		100.0	%
Total NIW monthly vs. single:
Monthly	$	14,832		85.7	%	$	10,368		81.9	%	$	7,778		88.5	%	$	7,765		88.7	%	$	25,200		84.1	%
Single	2,471			14.3	%	2,292			18.1	%	1,010			11.5	%	988			11.3	%	4,763			15.9	%
Total	$	17,303		100.0	%	$	12,660		100.0	%	$	8,788		100.0	%	$	8,753		100.0	%	$	29,963		100.0	%
Total NIW purchase vs. refinance:
Purchase	$	16,063		92.8	%	$	10,720		84.7	%	$	6,964		79.2	%	$	7,264		83.0	%	$	26,783		89.4	%
Refinance	1,240			7.2	%	1,940			15.3	%	1,824			20.8	%	1,489			17.0	%	3,180			10.6	%
Total	$	17,303		100.0	%	$	12,660		100.0	%	$	8,788		100.0	%	$	8,753		100.0	%	$	29,963		100.0	%
Ending number of policies in force (PIF) (3)	1,183,659					1,164,929					1,153,630					199,661
Rollforward of insured loans in default:
Beginning delinquent number of loans	26,234					29,691					2,423					2,245					29,691
Plus: new notices	8,858					9,863					1,161					1,251					18,721
Less: cures	(9,739		)			(11,707		)			(1,028		)			(922		)			(21,446		)
Less: paid claims	(1,450		)			(1,613		)			(153		)			(151		)			(3,063		)
Plus: acquired delinquent loans (3)	—					—					27,288					—					—
Ending delinquent number of loans (3)	23,903					26,234					29,691					2,423					23,903
Ending percentage of loans in default (3)	2.02		%			2.25		%			2.57		%			1.21		%
Losses:
Number of claims paid	2,111					1,613					153					151					3,724
Total paid claims (in thousands)	$	85,539				$	70,784				$	6,080				$	5,513				$	156,323
Average per claim (in thousands)	$	40.5				$	43.9				$	39.7				$	36.5				$	42.0
Severity (2)	104.4		%			102.0		%			92.3		%			90.4		%			103.1		%
Average reserve per default (in thousands) (3)	$	20.4				$	20.4				$	20.5				$	25.2

(1)    The original principal balance of all loans that received coverage during the period.        

(2)    Represents total paid claims divided by RIF of loans for which claims were paid.

(3)    Includes first lien primary and pool policies.

20

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Mortgage Segment

(U.S. Dollars in millions)	June 30, 2017
	Loss Reserves, Net (1)		Primary IIF (2)				Primary RIF (3)				Delinquency Rate
	% of Total		Total		% of Total		Total		% of Total
Supplemental disclosures for U.S. primary mortgage insurance:
Policy year:
2007 and prior	74.1	%	$	22,865	9.4	%	5,222		8.4	%	10.12	%
2008	12.2	%	6,089		2.5	%	1,500		2.4	%	6.78	%
2009	0.7	%	1,369		0.6	%	323		0.5	%	2.41	%
2010	0.6	%	1,472		0.6	%	396		0.6	%	1.62	%
2011	1.0	%	4,423		1.8	%	1,208		1.9	%	1.07	%
2012	1.6	%	15,205		6.2	%	4,159		6.7	%	0.56	%
2013	3.4	%	24,871		10.2	%	6,764		10.8	%	0.69	%
2014	2.2	%	25,916		10.6	%	6,889		11.0	%	0.69	%
2015	2.2	%	46,682		19.1	%	11,941		19.1	%	0.39	%
2016	1.9	%	65,720		26.9	%	16,476		26.4	%	0.21	%
2017	0.1	%	29,623		12.1	%	7,485		12.0	%	0.03	%
Total	100.0	%	$	244,235	100.0	%	$	62,363	100.0	%	2.02	%

(1) Total reserves for losses and loss adjustment expenses, net of recoverables, was $510.3 million at June 30, 2017.

(2) The aggregate dollar amount of each insured mortgage loan’s current principal balance.

(3) The aggregate dollar amount of each insured mortgage loan’s current principal balance multiplied by the insurance coverage percentage specified in the policy for insurance policies issued and after contract limits and/or loss ratio caps for risk-sharing or reinsurance transactions.

21

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Selected Information on Losses and Loss Adjustment Expenses

(U.S. Dollars in thousands)	Three Months Ended															Six Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			June 30,			June 30,
	2017			2017			2016			2016			2016			2017			2016
Components of losses and loss adjustment expenses incurred (1)
Paid losses and loss adjustment expenses	$	521,463		$	464,942		$	431,071		$	407,352		$	484,033		$	986,405		$	875,576
Change in unpaid losses and loss adjustment expenses	57,776			2,218			38,145			42,524			17,057			59,994			69,350
Total losses and loss adjustment expenses	$	579,239		$	467,160		$	469,216		$	449,876		$	501,090		$	1,046,399		$	944,926
Estimated net (favorable) adverse development in prior year loss reserves, net of related adjustments (1)
Net impact on underwriting results:
Insurance	$	(784	)	$	(1,274	)	$	(7,523	)	$	(12,043	)	$	(4,133	)	$	(2,058	)	$	(8,310	)
Reinsurance	(38,720		)	(59,708		)	(41,965		)	(60,374		)	(63,187		)	(98,428		)	(110,130		)
Mortgage	(29,779		)	(23,561		)	(4,911		)	(2,498		)	(11,066		)	(53,340		)	(13,801		)
Total	$	(69,283	)	$	(84,543	)	$	(54,399	)	$	(74,915	)	$	(78,386	)	$	(153,826	)	$	(132,241	)
Impact on losses and loss adjustment expenses:
Insurance	$	(1,977	)	$	(2,140	)	$	(8,281	)	$	(13,716	)	$	(4,905	)	$	(4,117	)	$	(11,055	)
Reinsurance	(39,535		)	(57,248		)	(42,096		)	(59,481		)	(69,836		)	(96,783		)	(117,200		)
Mortgage	(29,798		)	(23,561		)	(4,911		)	(2,498		)	(11,066		)	(53,359		)	(13,801		)
Total	$	(71,310	)	$	(82,949	)	$	(55,288	)	$	(75,695	)	$	(85,807	)	$	(154,259	)	$	(142,056	)
Impact on acquisition expenses:
Insurance	$	1,193		$	866		$	758		$	1,673		$	772		$	2,059		$	2,745
Reinsurance	815			(2,460		)	131			(893		)	6,649			(1,645		)	7,070
Mortgage	19			—			—			—			—			19			—
Total	$	2,027		$	(1,594	)	$	889		$	780		$	7,421		$	433		$	9,815
Impact on combined ratio:
Insurance	(0.2		)%	(0.3		)%	(1.5		)%	(2.3		)%	(0.8		)%	(0.2		)%	(0.8		)%
Reinsurance	(12.3		)%	(24.4		)%	(16.7		)%	(24.0		)%	(21.7		)%	(17.6		)%	(19.9		)%
Mortgage	(11.5		)%	(9.6		)%	(6.0		)%	(3.2		)%	(16.6		)%	(10.6		)%	(10.8		)%
Total	(6.4		)%	(8.5		)%	(6.4		)%	(8.8		)%	(8.9		)%	(7.4		)%	(7.7		)%
Impact on loss ratio:
Insurance	(0.4		)%	(0.4		)%	(1.6		)%	(2.6		)%	(0.9		)%	(0.4		)%	(1.1		)%
Reinsurance	(12.6		)%	(23.4		)%	(16.7		)%	(23.6		)%	(24.0		)%	(17.3		)%	(21.2		)%
Mortgage	(11.5		)%	(9.6		)%	(6.0		)%	(3.2		)%	(16.6		)%	(10.6		)%	(10.8		)%
Total	(6.5		)%	(8.3		)%	(6.5		)%	(8.9		)%	(9.7		)%	(7.4		)%	(8.3		)%
Impact on acquisition expense ratio:
Insurance	0.2		%	0.1		%	0.1		%	0.3		%	0.1		%	0.2		%	0.3		%
Reinsurance	0.3		%	(1.0		)%	0.0		%	(0.4		)%	2.3		%	(0.3		)%	1.3		%
Mortgage	0.0		%	0.0		%	0.0		%	0.0		%	0.0		%	0.0		%	0.0		%
Total	0.1		%	(0.2		)%	0.1		%	0.1		%	0.8		%	0.0		%	0.6		%
Estimated net losses incurred from current accident year catastrophic events (2)
Insurance	$	8,475		$	2,494		$	23,725		$	1,774		$	20,592		$	10,969		$	21,020
Reinsurance	16,367			9,852			10,349			8,931			15,705			26,219			19,479
Total	$	24,842		$	12,346		$	34,074		$	10,705		$	36,297		$	37,188		$	40,499
Impact on combined ratio:
Insurance	1.6		%	0.5		%	4.6		%	0.3		%	3.9		%	1.1		%	2.0		%
Reinsurance	5.2		%	4.0		%	4.1		%	3.5		%	5.4		%	4.7		%	3.5		%
Total	2.3		%	1.2		%	4.0		%	1.3		%	4.1		%	1.8		%	2.4		%

(1) Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.

(2) Equals estimated losses from catastrophic events occurring in the current accident year, net of reinsurance and reinstatement premiums. Amounts shown for the insurance segment are for named catastrophic events only. Amounts shown for the reinsurance segment include (i) named events with over $5 million of losses incurred by its Bermuda and Europe operations and (ii) all catastrophe losses incurred by its U.S. operations. Amounts not applicable for the mortgage segment.

22

Arch Capital Group Ltd. and Subsidiaries

Investment Information — Investable Asset Summary and Investment Portfolio Metrics

The following table summarizes the Company’s investable assets and portfolio metrics (1):

(U.S. Dollars in thousands)	June 30,					March 31,					December 31,					September 30,					June 30,
	2017					2017					2016					2016					2016
Investable assets (1) (2):
Fixed maturities available for sale, at fair value	$	13,671,011		71.3	%	$	13,745,932		73.0	%	$	13,426,577		72.0	%	$	11,026,929		68.7	%	$	11,050,464		72.8	%
Fixed maturities, at fair value (3)	408,413			2.1	%	408,986			2.2	%	364,856			2.0	%	423,733			2.6	%	377,482			2.5	%
Fixed maturities pledged under securities lending agreements, at fair value	603,268			3.1	%	523,101			2.8	%	730,341			3.9	%	442,099			2.8	%	319,672			2.1	%
Total fixed maturities	14,682,692			76.6	%	14,678,019			77.9	%	14,521,774			77.9	%	11,892,761			74.1	%	11,747,618			77.4	%
Equity securities available for sale, at fair value	461,017			2.4	%	428,594			2.3	%	518,041			2.8	%	521,587			3.3	%	490,815			3.2	%
Equity securities, at fair value (3)	61,906			0.3	%	55,311			0.3	%	25,328			0.1	%	27,644			0.2	%	7,090			0.0	%
Equity securities pledged under securities lending agreements, at fair value	6,853			0.0	%	2,468			0.0	%	14,639			0.1	%	11,658			0.1	%	11,101			0.1	%
Total equity securities	529,776			2.8	%	486,373			2.6	%	558,008			3.0	%	560,889			3.5	%	509,006			3.4	%
Other investments available for sale, at fair value	248,661			1.3	%	228,437			1.2	%	167,970			0.9	%	168,243			1.0	%	182,957			1.2	%
Other investments, at fair value (3)	1,175,234			6.1	%	1,131,797			6.0	%	1,108,871			6.0	%	1,065,853			6.6	%	1,003,621			6.6	%
Total other investments	1,423,895			7.4	%	1,360,234			7.2	%	1,276,841			6.9	%	1,234,096			7.7	%	1,186,578			7.8	%
Investments accounted for using the equity method (4)	948,856			4.9	%	861,607			4.6	%	811,273			4.4	%	797,542			5.0	%	685,766			4.5	%
Short-term investments available for sale, at fair value	914,356			4.8	%	803,619			4.3	%	612,005			3.3	%	1,184,408			7.4	%	853,531			5.6	%
Short-term investments, at fair value (3)	52,419			0.3	%	75,559			0.4	%	64,542			0.3	%	—			0.0	%	—			0.0	%
Total short-term investments	966,775			5.0	%	879,178			4.7	%	676,547			3.6	%	1,184,408			7.4	%	853,531			5.6	%
Cash	676,391			3.5	%	656,188			3.5	%	768,049			4.1	%	511,784			3.2	%	442,066			2.9	%
Securities transactions entered into but not settled at the balance sheet date	(54,676		)	(0.3	)%	(87,990		)	(0.5	)%	23,697			0.1	%	(138,760		)	(0.9	)%	(246,257		)	(1.6	)%
Total investable assets held by the Company	$	19,173,709		100.0	%	$	18,833,609		100.0	%	$	18,636,189		100.0	%	$	16,042,720		100.0	%	$	15,178,308		100.0	%
Average effective duration (in years)	3.41					3.36					3.64					3.31					3.85
Average S&P/Moody’s credit ratings (5)	AA/Aa2					AA/Aa2					AA-/Aa3					AA/Aa2					AA/Aa2
Embedded book yield (before investment expenses)	2.27		%			2.23		%			2.03		%			1.78		%			1.92		%

(1) Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results. Such amounts are summarized as follows:

Investable assets in ‘other’ segment:
Cash	$	63,929		$	47,566		$	74,893		$	67,032		$	74,525
Investments accounted for using the fair value option	2,129,436			1,976,467			1,857,623			1,872,343			1,677,836
Securities sold but not yet purchased	(69,273		)	(59,430		)	(33,157		)	(52,195		)	(54,668		)
Securities transactions entered into but not settled at the balance sheet date	(191,534		)	(61,981		)	(41,596		)	(50,169		)	5,738
Total investable assets included in ‘other’ segment	$	1,932,558		$	1,902,622		$	1,857,763		$	1,837,011		$	1,703,431

(2)    This table excludes the collateral received and reinvested and includes the securities pledged under securities lending agreements, at fair value.

(3)    Represents investments which are carried at fair value under the fair value option and reflected as “investments accounted for using the fair value option” on the balance sheet.

(4) Changes in the carrying value of investment funds 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.

(5)    Average credit ratings on the Company’s investment portfolio on securities with ratings assigned by Standard & Poor’s (“S&P”) and Moody’s Investors Service (“Moody’s”).

23

Arch Capital Group Ltd. and Subsidiaries

Investment Information — Composition of Net Investment Income, Yield and Total Return

The following table summarizes the Company’s net investment income, yield and total return:

(U.S. Dollars in thousands, except share data)	Three Months Ended															Six Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			June 30,			June 30,
	2017			2017			2016			2016			2016			2017			2016
Composition of net investment income (1):
Fixed maturities	$	83,656		$	82,781		$	60,402		$	58,542		$	64,365		$	166,437		$	123,366
Term loan investments (2)	3,881			3,114			9,626			6,397			5,669			6,995			10,527
Equity securities (dividends)	3,976			2,966			2,450			3,633			3,984			6,942			7,740
Short-term investments	1,669			1,441			1,720			823			618			3,110			1,076
Other (3)	14,417			18,120			9,220			8,706			8,152			32,537			21,824
Gross investment income	107,599			108,422			83,418			78,101			82,788			216,021			164,533
Investment expenses	(15,079		)	(12,610		)	(13,313		)	(11,819		)	(12,391		)	(27,689		)	(23,727		)
Net investment income	$	92,520		$	95,812		$	70,105		$	66,282		$	70,397		$	188,332		$	140,806
Per share	$	0.66		$	0.69		$	0.56		$	0.53		$	0.57		$	1.35		$	1.13
Investment income yield, at amortized cost (1) (4):
Pre-tax	2.04		%	2.13		%	1.92		%	1.81		%	2.08		%	2.10		%	2.12		%
After-tax	1.81		%	1.89		%	1.80		%	1.70		%	1.91		%	1.86		%	1.92		%
Total return (1) (5):
Including effects of foreign exchange	1.63		%	1.70		%	(1.89		)%	0.88		%	1.27		%	3.37		%	3.11		%
Excluding effects of foreign exchange	1.29		%	1.64		%	(1.66		)%	0.91		%	1.63		%	2.94		%	3.14		%

(1) Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.

(2) Included in “investments accounted for using the fair value option” on the Company’s balance sheet.

(3) Includes income on other investments, funds held balances, cash balances and other.

(4) Presented on an annualized basis and excluding 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.

(5) Includes net investment income, equity in net income or loss of investment funds accounted for using the equity method, net realized gains and losses and the change in unrealized gains or losses generated by the Company’s investment portfolio. Total return is calculated on a pre-tax basis and before investment expenses.

24

Arch Capital Group Ltd. and Subsidiaries

Investment Information — Composition of Fixed Maturities

The following table summarizes the Company’s fixed maturities and fixed maturities pledged under securities lending agreements (1):

(U.S. Dollars in thousands)	Fair Value		Gross Unrealized Gains		Gross Unrealized Losses			Net Unrealized Gains (Losses)			Amortized Cost		Fair Value / Amortized Cost		Fair Value % of Total
At June 30, 2017
Corporates	$	4,598,288	$	42,142	$	(23,632	)	$	18,510		$	4,579,778	100.4	%	31.3	%
U.S. government and government agencies	3,425,196		4,673		(15,246		)	(10,573		)	3,435,769		99.7	%	23.3	%
Municipal bonds	2,618,827		29,728		(9,841		)	19,887			2,598,940		100.8	%	17.8	%
Non-U.S. government securities	1,434,842		30,114		(21,466		)	8,648			1,426,194		100.6	%	9.8	%
Asset-backed securities	1,739,695		10,540		(4,494		)	6,046			1,733,649		100.3	%	11.8	%
Commercial mortgage-backed securities	521,272		3,448		(6,363		)	(2,915		)	524,187		99.4	%	3.6	%
Residential mortgage-backed securities	344,572		4,650		(1,596		)	3,054			341,518		100.9	%	2.3	%
Total	$	14,682,692	$	125,295	$	(82,638	)	$	42,657		$	14,640,035	100.3	%	100.0	%
At December 31, 2016
Corporates	$	4,696,079	$	27,606	$	(46,905	)	$	(19,299	)	$	4,715,378	99.6	%	32.3	%
U.S. government and government agencies	2,804,811		9,319		(24,437		)	(15,118		)	2,819,929		99.5	%	19.3	%
Municipal bonds	3,713,434		8,554		(29,154		)	(20,600		)	3,734,034		99.4	%	25.6	%
Non-U.S. government securities	1,142,735		19,036		(56,872		)	(37,836		)	1,180,571		96.8	%	7.9	%
Asset-backed securities	1,123,987		6,897		(6,526		)	371			1,123,616		100.0	%	7.7	%
Commercial mortgage-backed securities	536,051		2,876		(6,508		)	(3,632		)	539,683		99.3	%	3.7	%
Residential mortgage-backed securities	504,677		4,794		(8,357		)	(3,563		)	508,240		99.3	%	3.5	%
Total	$	14,521,774	$	79,082	$	(178,759	)	$	(99,677	)	$	14,621,451	99.3	%	100.0	%

(1) Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.

25

Arch Capital Group Ltd. and Subsidiaries

Investment Information — Credit Quality Distribution and Maturity Profile

The following table summarizes the credit quality distribution and maturity profile of the Company’s fixed maturities and fixed maturities pledged under securities lending agreements (1):

(U.S. Dollars in thousands)	June 30,				March 31,				December 31,				September 30,				June 30,
	2017				2017				2016				2016				2016
Credit quality distribution of total fixed maturities (2) (3):
U.S. government and government agencies (4)	$	3,710,779	25.3	%	$	3,583,161	24.4	%	$	3,210,899	22.1	%	$	3,579,338	30.1	%	$	3,364,709	28.6	%
AAA	4,659,940		31.7	%	4,665,048		31.8	%	3,918,739		27.0	%	3,383,665		28.5	%	3,421,385		29.1	%
AA	2,636,762		18.0	%	2,700,952		18.4	%	3,148,226		21.7	%	2,137,615		18.0	%	2,255,666		19.2	%
A	2,091,875		14.2	%	2,108,293		14.4	%	2,338,834		16.1	%	1,581,646		13.3	%	1,541,075		13.1	%
BBB	800,125		5.4	%	860,615		5.9	%	1,203,942		8.3	%	470,613		4.0	%	525,084		4.5	%
BB	285,952		1.9	%	298,703		2.0	%	226,321		1.6	%	277,589		2.3	%	232,859		2.0	%
B	175,908		1.2	%	154,028		1.0	%	156,405		1.1	%	163,327		1.4	%	151,549		1.3	%
Lower than B	81,493		0.6	%	87,373		0.6	%	90,833		0.6	%	101,602		0.9	%	96,726		0.8	%
Not rated	239,858		1.6	%	219,846		1.5	%	227,574		1.6	%	197,366		1.7	%	158,565		1.3	%
Total fixed maturities, at fair value	$	14,682,692	100.0	%	$	14,678,019	100.0	%	$	14,521,774	100.0	%	$	11,892,761	100.0	%	$	11,747,618	100.0	%
Maturity profile of total fixed maturities (2):
Due in one year or less	$	619,654	4.2	%	$	665,855	4.5	%	$	582,729	4.0	%	$	308,548	2.6	%	$	272,242	2.3	%
Due after one year through five years	7,478,786		50.9	%	7,450,643		50.8	%	6,367,486		43.8	%	5,484,120		46.1	%	5,225,233		44.5	%
Due after five years through ten years	3,624,647		24.7	%	3,425,268		23.3	%	4,753,999		32.7	%	2,873,200		24.2	%	2,907,672		24.8	%
Due after 10 years	354,066		2.4	%	482,150		3.3	%	652,845		4.5	%	790,392		6.6	%	677,863		5.8	%
	12,077,153		82.3	%	12,023,916		81.9	%	12,357,059		85.1	%	9,456,260		79.5	%	9,083,010		77.3	%
Mortgage-backed securities	344,572		2.3	%	425,235		2.9	%	504,677		3.5	%	577,097		4.9	%	674,451		5.7	%
Commercial mortgage-backed securities	521,272		3.6	%	590,521		4.0	%	536,051		3.7	%	618,235		5.2	%	624,391		5.3	%
Asset-backed securities	1,739,695		11.8	%	1,638,347		11.2	%	1,123,987		7.7	%	1,241,169		10.4	%	1,365,766		11.6	%
Total fixed maturities, at fair value	$	14,682,692	100.0	%	$	14,678,019	100.0	%	$	14,521,774	100.0	%	$	11,892,761	100.0	%	$	11,747,618	100.0	%

(1) Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.

(2) This table excludes the collateral received and reinvested and includes the fixed maturities pledged under securities lending agreements, at fair value.

(3)     For individual fixed maturities, S&P ratings are used. In the absence of an S&P rating, ratings from Moody’s are used, followed by ratings from Fitch Ratings.

(4)     Includes U.S. government-sponsored agency mortgage backed securities and agency commercial mortgage backed securities.

26

Arch Capital Group Ltd. and Subsidiaries

Investment Information — Analysis of Corporate Exposures

The following table summarizes the Company’s corporate bonds by sector (1):

(U.S. Dollars in thousands)	June 30,				March 31,				December 31,				September 30,				June 30,
	2017				2017				2016				2016				2016
Sector:
Industrials	$	2,471,700	53.8	%	$	2,723,799	55.6	%	$	2,617,467	55.7	%	$	1,637,201	50.4	%	$	1,638,355	51.0	%
Financials	1,519,340		33.0	%	1,424,620		29.1	%	1,321,493		28.1	%	1,056,883		32.5	%	1,025,714		31.9	%
Utilities	284,356		6.2	%	337,051		6.9	%	366,440		7.8	%	178,199		5.5	%	225,403		7.0	%
Covered bonds	127,022		2.8	%	160,840		3.3	%	182,132		3.9	%	168,133		5.2	%	154,194		4.8	%
All other (2)	195,870		4.3	%	256,290		5.2	%	208,547		4.4	%	210,005		6.5	%	166,937		5.2	%
Total fixed maturities, at fair value	$	4,598,288	100.0	%	$	4,902,600	100.0	%	$	4,696,079	100.0	%	$	3,250,421	100.0	%	$	3,210,603	100.0	%
Credit quality distribution (3):
AAA	$	464,732	10.1	%	$	551,784	11.3	%	$	470,072	10.0	%	$	429,523	13.2	%	$	367,194	11.4	%
AA	947,849		20.6	%	912,162		18.6	%	819,071		17.4	%	788,465		24.3	%	837,863		26.1	%
A	1,791,532		39.0	%	1,898,080		38.7	%	1,842,796		39.2	%	1,193,288		36.7	%	1,134,860		35.3	%
BBB	862,117		18.7	%	988,633		20.2	%	1,054,202		22.4	%	348,405		10.7	%	420,279		13.1	%
BB	208,913		4.5	%	206,124		4.2	%	190,913		4.1	%	195,010		6.0	%	184,652		5.8	%
B	149,071		3.2	%	157,467		3.2	%	138,910		3.0	%	140,582		4.3	%	136,997		4.3	%
Lower than B	28,872		0.6	%	31,003		0.6	%	28,866		0.6	%	28,228		0.9	%	20,416		0.6	%
Not rated	145,202		3.2	%	157,347		3.2	%	151,249		3.2	%	126,920		3.9	%	108,342		3.4	%
Total fixed maturities, at fair value	$	4,598,288	100.0	%	$	4,902,600	100.0	%	$	4,696,079	100.0	%	$	3,250,421	100.0	%	$	3,210,603	100.0	%

(1) Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.

(2)    Includes sovereign securities, supranational securities and other.

(3)    For individual fixed maturities, S&P ratings are used. In the absence of an S&P rating, ratings from Moody’s are used, followed by ratings from Fitch Ratings.

The following table summarizes the Company’s top ten exposures to fixed income corporate issuers by fair value at June 30, 2017 (1):

(U.S. Dollars in thousands)	Fair Value		% of Asset Class		% of Investable Assets		Credit Quality (2)
Issuer:
Apple Inc.	$	141,619	3.1	%	0.7	%	AA+/Aa1
Microsoft Corporation	131,332		2.9	%	0.7	%	AAA/Aaa
JPMorgan Chase & Co.	118,359		2.6	%	0.6	%	A-/A3
The Bank of New York Mellon Corporation	94,126		2.0	%	0.5	%	A/A1
Wells Fargo & Company	86,082		1.9	%	0.4	%	A/A2
Massmutual Global Funding II C	82,409		1.8	%	0.4	%	AA+/Aa2
Citigroup Inc.	81,149		1.8	%	0.4	%	A-/A3
MetLife, Inc.	77,893		1.7	%	0.4	%	AA-/Aa3
New York Life Insurance Company	69,203		1.5	%	0.4	%	AA+/Aaa
Morgan Stanley	64,765		1.4	%	0.3	%	BBB+/A3
Total	$	946,937	20.6	%	4.9	%

(1) Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.

(2)    Average credit ratings assigned by S&P and Moody’s, respectively.

27

Arch Capital Group Ltd. and Subsidiaries

Investment Information — Structured Securities and Eurozone Investments

The following table provides the composition of the Company’s structured securities at June 30, 2017 (1):

(U.S. Dollars in thousands)	Agencies		AAA		AA		A		BBB		Non-Investment Grade		Total
Residential mortgage-backed securities	$	281,187	$	9,763	$	4,586	$	5,218	$	1,138	$	42,680	$	344,572
Commercial mortgage-backed securities	4,397		394,621		17,440		10,885		45,055		48,874		521,272
Asset-backed securities	—		1,338,858		17,602		169,934		97,909		115,392		1,739,695
Total	$	285,584	$	1,743,242	$	39,628	$	186,037	$	144,102	$	206,946	$	2,605,539

(1) Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.

The fair value of the Company’s Eurozone investments are as follows at June 30, 2017 (1):

(U.S. Dollars in thousands)			Financial		Other		Bank		Equities
	Sovereign (3)		Corporates		Corporates		Loans (4)		and Other		Total
Country (2):
Netherlands	$	100,046	$	16,957	$	91,767	$	1,591	$	1,901	$	212,262
Germany	113,430		7,985		41,463		35,974		7,360		206,212
Belgium	35,278		7,303		364		—		—		42,945
France	4,816		1,801		11,392		1,419		22,371		41,800
Luxembourg	—		11,328		2,231		11,827		—		25,386
Austria	16,525		—		—		—		—		16,525
Spain	—		—		1,668		3,446		9,453		14,567
Ireland	—		4,678		1,371		2,285		—		8,335
Supranational (4)	7,282		—		—		—		—		7,282
Italy	—		—		—		693		5,847		6,540
Finland	—		—		—		3,464		—		3,464
Greece	—		—		155		—		1,220		1,375
Portugal	—		—		—		—		562		562
Total	$	277,378	$	50,052	$	150,411	$	60,698	$	48,714	$	587,254

(1) Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.

(2) The country allocations set forth in the table are based on various assumptions made by the Company in assessing the country in which the underlying credit risk resides, including a review of the jurisdiction of organization, business operations and other factors. Based on such analysis, the Company does not believe that it has any other Eurozone investments at June 30, 2017.

(3) Sovereign includes securities issued and/or guaranteed by Eurozone governments.

(4) Includes World Bank, European Investment Bank, International Finance Corp. and European Bank for Reconstruction and Development.

28

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 Arch common shareholders, which is defined as net income available to Arch 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, net foreign exchange gains or losses and UGC transaction costs and other, net of income taxes, and the use of annualized operating return on average common equity. The presentation of after-tax operating income available to Arch common shareholders and annualized operating return on average common equity are non-GAAP financial measures as defined in Regulation G. The reconciliation of such measures to net income available to Arch common shareholders and annualized return on average common equity (the most directly comparable GAAP financial measures) in accordance with Regulation G is included on the following page.

The Company believes that 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, net foreign exchange gains or losses and UGC transaction costs and other 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 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 are an integral part of the Company’s operations, the decision to realize investment gains or losses, the recognition of the change in the carrying value of investments accounted for using the fair value option in net realized 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 recognized 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 fair 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. UGC transaction costs and other include advisory, financing, legal, severance, incentive compensation and other transaction costs related to the UGC acquisition. During the 2016 fourth quarter, UGC transaction costs and other included non-recurring expenses related to a change in the Company’s approach on the deferral of certain internal underwriting costs which are no longer being deferred. The Company believes that UGC transaction costs and other, due to their non-recurring nature, are not indicative of the performance of, or trends in, the Company’s business performance. Due to these reasons, the Company excludes 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, net foreign exchange gains or losses and UGC transaction costs and other from the calculation of after-tax operating income or loss available to Arch common shareholders.

The Company believes that showing net income available to Arch 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 Arch common shareholders, the Company believes that this presentation enables investors and other users of the Company’s financial information to analyze the Company’s performance in a manner similar to how the Company’s management analyzes performance. The Company also believes that this measure follows industry practice and, therefore, allows the users of the Company’s financial information to compare the Company’s performance with its industry peer group. The Company believes that the equity analysts and certain rating agencies which follow the Company and the insurance industry as a whole generally exclude these items from their analyses for the same reasons.

In addition, the Company’s presentation includes the use of information prepared on a ‘core’ basis, which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). Information provided on a ‘core’ basis are non-GAAP financial measures as defined in Regulation G. Pursuant to generally accepted accounting principles, Watford Re is considered a variable interest entity and the Company concluded that it is the primary beneficiary of Watford Re. As such, the Company consolidates the results of Watford Re in its consolidated financial statements, although it only owns approximately 11% of Watford Re’s common equity. Watford Re has its own management and board of directors that is responsible for its overall profitability. In addition, the Company does not guarantee or provide credit support for Watford Re. Because Watford Re is an independent company, the assets of Watford Re can be used only to settle obligations of Watford Re and Watford Re is solely responsible for its own liabilities and commitments. The Company’s financial exposure to Watford Re is limited to its investment in Watford Re’s common and preferred shares and counterparty credit risk (mitigated by collateral) arising from the reinsurance transactions. The Company believes that presenting information on a ‘core’ basis 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. See ‘Segment Information’ for a further discussion of segment results and a reconciliation of core and consolidated results.

The Company’s segment information includes the presentation of consolidated underwriting income or loss and a subtotal of underwriting income or loss on a ‘core’ basis. Such measures represent the pre-tax profitability of the Company’s underwriting operations and include net premiums earned plus other underwriting income, less losses and loss adjustment expenses, acquisition expenses and other operating expenses. Other operating expenses include those operating expenses that are incremental and/or directly attributable to the Company’s individual underwriting operations. Underwriting income or loss does not incorporate items included in the Company’s corporate (non-underwriting) segment. While these measures are presented in the Segment Information footnote to the Company’s Consolidated Financial Statements, they are considered non-GAAP financial measures when presented elsewhere on a consolidated basis. The reconciliations of underwriting income or loss to income before income taxes (the most directly comparable GAAP financial measure) on a consolidated basis and a ‘core’ basis, in accordance with Regulation G, is shown on pages 10 to 13.

The Company’s segment information includes the use of a combined ratio excluding catastrophic activity and prior year development for the insurance segment and reinsurance segment and a combined ratio excluding prior year development for the mortgage segment. These ratios are non-GAAP financial measures as defined in Regulation G. The reconciliation of such measures to the combined ratio (the most directly comparable GAAP financial measure) in accordance with Regulation G are shown on the individual segment pages. The Company’s management utilizes the adjusted combined ratio excluding current accident year catastrophic events and favorable or adverse development in prior year loss reserves in its analysis of the core underwriting performance of each of its underwriting segments.

Total return on investments includes investment income, equity in net income or 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 Arch’s investment portfolio. Total return is calculated on a pre-tax basis and before investment expenses, excludes amounts reflected in the ‘other’ segment, and reflects the effect of financial market conditions along with foreign currency fluctuations. Management uses total return on investments as a key measure of the return generated to Arch common shareholders on the capital held in its business, and compares the return generated by the Company’s investment portfolio against benchmark returns which it measures portfolio returns against during the periods presented.

29

Arch Capital Group Ltd. and Subsidiaries

Operating Income Reconciliation and Annualized Operating Return on Average Common Equity

The following table summarizes the Company’s consolidated financial data, including a reconciliation of net income available to Arch common shareholders to after-tax operating income available to Arch common shareholders and related diluted per share results. Each line item reflects the impact of the Company’s approximate 11% ownership of Watford Re’s common equity:

(U.S. Dollars in thousands, except share data)	Three Months Ended															Six Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			June 30,			June 30,
	2017			2017			2016			2016			2016			2017			2016
Net income available to Arch common shareholders	$	173,818		$	241,909		$	62,396		$	247,388		$	205,570		$	415,727		$	354,884
Net realized (gains) losses	(18,452		)	(29,134		)	98,477			(99,159		)	(43,935		)	(47,586		)	(76,399		)
Net impairment losses recognized in earnings	1,730			1,807			13,593			3,867			5,343			3,537			12,982
Equity in net (income) loss of investment funds accounted for using the equity method	(32,706		)	(48,088		)	(16,421		)	(16,662		)	(8,737		)	(80,794		)	(15,392		)
Net foreign exchange (gains) losses	38,012			19,796			(35,547		)	4,054			(22,703		)	57,808			(494		)
UGC transaction costs and other	2,675			15,584			34,587			7,142			—			18,259			—
Income tax (benefit) expense (1)	3,842			(3,909		)	(15,557		)	2,970			5,036			(67		)	10,735
After-tax operating income available to Arch common shareholders	$	168,919		$	197,965		$	141,528		$	149,600		$	140,574		$	366,884		$	286,316
Diluted per common share results:
Net income available to Arch common shareholders	$	1.25		$	1.74		$	0.50		$	1.98		$	1.65		$	2.99		$	2.85
Net realized (gains) losses	(0.13		)	(0.21		)	0.78			(0.79		)	(0.35		)	(0.34		)	(0.62		)
Net impairment losses recognized in earnings	0.01			0.01			0.11			0.03			0.04			0.02			0.10
Equity in net (income) loss of investment funds accounted for using the equity method	(0.24		)	(0.34		)	(0.13		)	(0.13		)	(0.07		)	(0.58		)	(0.12		)
Net foreign exchange (gains) losses	0.27			0.14			(0.28		)	0.03			(0.18		)	0.42			0.00
UGC transaction costs and other	0.02			0.11			0.27			0.06			0.00			0.13			0.00
Income tax (benefit) expense (1)	0.03			(0.03		)	(0.12		)	0.02			0.04			0.00			0.09
After-tax operating available to Arch common shareholders	$	1.21		$	1.42		$	1.13		$	1.20		$	1.13		$	2.64		$	2.30
Weighted average common shares and common share equivalents outstanding — diluted	139,244,646			139,047,672			125,427,259			124,931,653			124,365,596			139,140,632			124,425,126
Beginning common shareholders’ equity	$	7,833,289		$	7,481,163		$	6,538,983		$	6,340,583		$	6,050,248		$	7,481,163		$	5,841,542
Ending common shareholders’ equity	8,126,332			7,833,289			7,481,163			6,538,983			6,340,583			8,126,332			6,340,583
Average common shareholders’ equity (2)	$	7,979,811		$	7,657,226		$	6,471,392		$	6,439,783		$	6,195,416		$	7,803,748		$	6,091,063
Annualized return on average common equity (2)	8.7		%	12.6		%	3.9		%	15.4		%	13.3		%	10.7		%	11.7		%
Annualized operating return on average common equity (2)	8.5		%	10.3		%	8.7		%	9.3		%	9.1		%	9.4		%	9.4		%

(1) Income tax expense on net realized gains or losses, net impairment losses recognized in earnings, equity in net income (loss) of investment funds accounted for using the equity method, net foreign exchange gains or losses and UGC transaction costs and other reflects the relative mix reported by jurisdiction and the varying tax rates in each jurisdiction.

(2) For the 2016 fourth quarter, average common shareholders’ equity and the related returns on average common equity reflect the weighted impact of the $1.10 billion of convertible non-voting common equivalent preferred shares, which were issued on December 31, 2016 as part of the UGC acquisition.

30

Arch Capital Group Ltd. and Subsidiaries

Operating Income and Effective Tax Rate Calculations

The following table provides a reconciliation of income before income taxes to after-tax operating income available to Arch common shareholders and an analysis of the effective tax rate on pre-tax operating income available to Arch common shareholders:

(U.S. Dollars in thousands)	Three Months Ended															Six Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			June 30,			June 30,
	2017			2017			2016			2016			2016			2017			2016
Arch Operating Income Components (1):
Income before income taxes	$	218,177		$	279,503		$	59,611		$	260,385		$	221,010		$	497,680		$	390,108
Net realized (gains) losses	(18,046		)	(28,512		)	99,149			(95,946		)	(40,927		)	(46,558		)	(72,789		)
Net impairment losses recognized in earnings	1,730			1,807			13,593			3,867			5,343			3,537			12,982
Equity in net (income) loss of investment funds accounted for using the equity method	(32,706		)	(48,088		)	(16,421		)	(16,662		)	(8,737		)	(80,794		)	(15,392		)
Net foreign exchange (gains) losses	37,821			19,845			(35,221		)	4,232			(22,461		)	57,666			(420		)
UGC transaction costs and other	2,675			15,584			34,587			7,142			—			18,259			—
Pre-tax operating income	209,651			240,139			155,298			163,018			154,228			449,790			314,489
Arch share of ‘other’ segment operating income (2)	942			1,350			1,109			2,324			927			2,292			2,503
Pre-tax operating income available to Arch (b)	210,593			241,489			156,407			165,342			155,155			452,082			316,992
Income tax expense (a)	(30,325		)	(32,306		)	(3,262		)	(10,258		)	(9,096		)	(62,631		)	(19,707		)
After-tax operating income available to Arch	180,268			209,183			153,145			155,084			146,059			389,451			297,285
Preferred dividends	(11,349		)	(11,218		)	(11,617		)	(5,484		)	(5,485		)	(22,567		)	(10,969		)
After-tax operating income available to Arch common shareholders	$	168,919		$	197,965		$	141,528		$	149,600		$	140,574		$	366,884		$	286,316
Effective tax rate on pre-tax operating income available to Arch (a)/(b)	14.4		%	13.4		%	2.1		%	6.2		%	5.9		%	13.9		%	6.2		%

(1) Line items are presented on a ‘core’ basis, excluding amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.

(2) Balances in the ‘other’ segment and a calculation of Arch’s share of the ‘other’ segment operating income is as follows:

(U.S. Dollars in thousands)	Three Months Ended															Six Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			June 30,			June 30,
	2017			2017			2016			2016			2016			2017			2016
Balances in ‘other’ segment:
Underwriting income (loss)	$	(2,643	)	$	(2,295	)	$	(3,266	)	$	1,379		$	(1,724	)	$	(4,938	)	$	(2,668	)
Net investment income	18,604			22,062			20,946			27,336			17,941			40,666			41,267
Interest expense	(2,837		)	(2,920		)	(3,058		)	(3,019		)	(3,231		)	(5,757		)	(6,711		)
Preferred dividends	(4,586		)	(4,584		)	(4,588		)	(4,588		)	(4,586		)	(9,170		)	(9,173		)
Pre-tax operating income (loss) available to common shareholders	8,538			12,263			10,034			21,108			8,400			20,801			22,715
Arch ownership	11		%	11		%	11		%	11		%	11		%	11		%	11		%
Arch share of ‘Other’ segment operating income (loss) (3)	$	942		$	1,350		$	1,109		$	2,324		$	927		$	2,292		$	2,503

(3) Excludes amounts attributable to net realized gains or losses and net foreign exchange gains or losses in the ‘other’ segment (see ‘Segment Information’).

31

Arch Capital Group Ltd. and Subsidiaries

Capital Structure and Share Repurchase Activity

The following table provides an analysis of the Company’s capital structure (1):

(U.S. Dollars in thousands, except share data)	June 30,			March 31,			December 31,			September 30,			June 30,
	2017			2017			2016			2016			2016
Debt:
ACGL Senior notes, due May 1, 2034 ($300,000 principal, 7.35%)	$	297,007		$	296,979		$	296,957		$	296,936		$	296,915
Arch-U.S. Senior notes, due Nov. 1, 2043 ($500,000 principal, 5.144%) (2)	494,572			494,548			494,525			494,501			494,477
Arch Finance Senior notes, due December 15, 2026 ($500,000 principal, 4.011%) (3)	495,868			495,778			495,689			—			—
Arch Finance Senior notes, due December 15, 2046 ($450,000 principal, 5.031%) (3)	445,123			445,105			445,087			—			—
Revolving credit agreement borrowings, due October 26, 2021 (variable)	500,000			500,000			500,000			100,000			100,000
Total debt	$	2,232,570		$	2,232,410		$	2,232,258		$	891,437		$	891,392
Shareholders’ equity available to Arch:
Series C non-cumulative preferred shares (6.75%)	$	322,555		$	322,555		$	322,555		$	325,000		$	325,000
Series E non-cumulative preferred shares (5.25%)	450,000			450,000			450,000			450,000			—
Common shareholders’ equity (a)	8,126,332			7,833,289			7,481,163			6,538,983			6,340,583
Total shareholders’ equity available to Arch	$	8,898,887		$	8,605,844		$	8,253,718		$	7,313,983		$	6,665,583
Total capital available to Arch	$	11,131,457		$	10,838,254		$	10,485,976		$	8,205,420		$	7,556,975
Common shares outstanding, net of treasury shares (b)	136,354,159			135,790,306			135,550,337			122,675,197			122,572,260
Book value per common share (4) (a)/(b)	$	59.60		$	57.69		$	55.19		$	53.30		$	51.73
Leverage ratios:
Senior notes/total capital available to Arch	15.6		%	16.0		%	16.5		%	9.6		%	10.5		%
Revolving credit agreement borrowings/total capital available to Arch	4.5		%	4.6		%	4.8		%	1.2		%	1.3		%
Debt/total capital available to Arch	20.1		%	20.6		%	21.3		%	10.9		%	11.8		%
Preferred/total capital available to Arch	6.9		%	7.1		%	7.4		%	9.4		%	4.3		%
Debt and preferred/total capital available to Arch	27.0		%	27.7		%	28.7		%	20.3		%	16.1		%

(1) Presented on a ‘core’ basis which excludes amounts related to the ‘other’ segment (i.e., results of Watford Re). See ‘Comments on Regulation G’ for a further discussion of the presentation of ‘core’ results.

(2) Issued by Arch Capital Group (U.S.) Inc. (“Arch-U.S.), a wholly owned subsidiary of Arch Capital Group Ltd. (“ACGL”), and fully and unconditionally guaranteed by ACGL.

(3) Issued by Arch Capital Finance LLC (“Arch Finance”), a wholly owned subsidiary of Arch U.S. MI Holdings Inc., and fully and unconditionally guaranteed by ACGL.

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

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

(U.S. Dollars in thousands except share data)	Three Months Ended										Cumulative
	June 30,		March 31,		December 31,		September 30,		June 30,		June 30,
	2017		2017		2016		2016		2016		2017
Effect of share repurchases:
Aggregate cost of shares repurchased	$	—	$	—	$	—	$	—	$	—	$	3,682,661
Shares repurchased	—		—		—		—		—		125,223,844
Average price per share repurchased	$	—	$	—	$	—	$	—	$	—	$	29.41
Average book value per common share (1)	$	58.65	$	56.44	$	54.25	$	52.52	$	50.64
Average repurchase price-to-book multiple	—		—		—		—		—
Remaining share repurchase authorization (2)	$	446,501

(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 2019.

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