Arch Capital (ACGL) 8-K Arch Capital Group LTD. Reports 2018 Second Quarter Results

EXHIBIT 99.2

	Arch Capital Group Ltd.
	Waterloo House, Ground Floor
	100 Pitts Bay Road
	Pembroke HM 08 Bermuda

Financial Supplement

Financial Information

as of June 30, 2018

The following financial supplement is provided to assist in your understanding of Arch Capital Group Ltd. (“Arch Capital”) and its subsidiaries (collectively, the “Company”).

This report is for informational purposes only.  It should be read in conjunction with documents filed by Arch Capital 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.

Contacts
Arch Capital Group Ltd.	Investor Relations
François Morin: (441) 278-9250	Donald Watson: (914) 872-3616; dwatson@archcapservices.com

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.	Consolidated Results Excluding ‘Other’ Segment	22
	g.	Selected Information on Losses and Loss Adjustment Expenses	23
IV.	Investment Information
	a.	Investable Asset Summary and Investment Portfolio Metrics	24
	b.	Composition of Net Investment Income, Yield and Total Return	25
	c.	Composition of Fixed Maturities	26
	d.	Credit Quality Distribution and Maturity Profile	27
	e.	Analysis of Corporate Exposures	28
	f.	Structured Securities and Eurozone Investments	29
V.	Other
	a.	Comments on Regulation G	30
	b.	Operating Income Reconciliation and Annualized Operating Return on Average Common Equity	31
	c.	Operating Income and Effective Tax Rate Calculations	32
	d.	Capital Structure and Share Repurchase Activity	33

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, 2017 is derived from or agrees to audited financial information. Unless otherwise noted, all data is in thousands, except for share and per share amounts and ratio information.

In May 2018, shareholders approved a proposal to amend the memorandum of association by sub-dividing the authorized common shares of Arch Capital to effect a three-for-one split of Arch Capital’s common shares. The share split changed the Company’s authorized common shares to 1.8 billion common shares (600 million previously), with a par value of U.S. $.0011 per share (U.S. $.0033 previously). Information pertaining to the composition of the Company’s shareholders’ equity accounts, shares and per share amounts has been retroactively restated in this financial supplement to reflect the share split for all periods presented.

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 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,
	2018			2017			Change		2018			2017			Change
Underwriting results:
Gross premiums written	$	1,591,202		$	1,533,142		3.8	%	$	3,312,807		$	3,139,828		5.5	%
Net premiums written	1,158,310			1,108,292			4.5	%	2,391,302			2,240,866			6.7	%
Net premiums earned	1,177,245			1,090,120			8.0	%	2,275,396			2,085,140			9.1	%
Underwriting income (2)	235,783			198,062			19.0	%	473,340			412,429			14.8	%
Loss ratio	51.7		%	53.1		%	(1.4	)	50.4		%	50.2		%	0.2
Acquisition expense ratio	14.3		%	14.3		%	—		14.4		%	14.6		%	(0.2	)
Other operating expense ratio	14.2		%	14.8		%	(0.6	)	14.7		%	15.8		%	(1.1	)
Combined ratio	80.2		%	82.2		%	(2.0	)	79.5		%	80.6		%	(1.1	)
Net investment income	$	107,761		$	92,520		16.5	%	$	208,004		$	188,332		10.4	%
Per diluted share	$	0.26		$	0.22		18.2	%	$	0.50		$	0.45		11.1	%
Net income available to Arch common shareholders	$	233,243		$	173,818		34.2	%	$	370,519		$	415,727		(10.9	)%
Per diluted share	$	0.56		$	0.42		33.3	%	$	0.89		$	1.00		(11.0	)%
After-tax operating income available to Arch common shareholders (2)	$	242,596		$	168,919		43.6	%	$	477,739		$	366,884		30.2	%
Per diluted share	$	0.59		$	0.40		47.5	%	$	1.15		$	0.88		30.7	%
Comprehensive income available to Arch	$	183,498		$	279,285		(34.3	)%	$	231,660		$	631,276		(63.3	)%
Net cash provided by operating activities	$	34,190		$	278,021		(87.7	)%	$	404,451		$	399,755		1.2	%
Weighted average common shares and common share equivalents outstanding — diluted	413,111,205			417,733,938			(1.1	)%	415,460,756			417,421,896			(0.5	)%
Financial measures:
Change in book value per common share during period	1.3		%	3.3		%	(2.0	)	1.9		%	8.0		%	(6.1	)
Annualized return on average common equity	11.1		%	8.7		%	2.4		8.9		%	10.7		%	(1.8	)
Annualized operating return on average common equity (2)	11.6		%	8.5		%	3.1		11.4		%	9.4		%	2.0
Total return on investments (3)
Including effects of foreign exchange	(0.19		)%	1.63		%	-182 bps		(0.51		)%	3.37		%	-388 bps
Excluding effects of foreign exchange	0.33		%	1.29		%	-96 bps		(0.08		)%	2.94		%	-302 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 or loss, 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,
	2018			2018			2017			2017			2017			2018			2017
Revenues
Net premiums written	$	1,298,896		$	1,412,544		$	1,111,015		$	1,325,403		$	1,248,695		$	2,711,440		$	2,524,955
Change in unearned premiums	37,867			(177,645		)	113,740			(63,517		)	(7,821		)	(139,778		)	(167,064		)
Net premiums earned	1,336,763			1,234,899			1,224,755			1,261,886			1,240,874			2,571,662			2,357,891
Net investment income	135,668			126,724			125,415			116,459			111,124			262,392			228,998
Net realized gains (losses)	(76,611		)	(110,998		)	26,978			66,275			21,735			(187,609		)	55,888
Net impairment losses recognized in earnings	(470		)	(162		)	(1,723		)	(1,878		)	(1,730		)	(632		)	(3,537		)
Other underwriting income	3,874			5,349			14,734			6,064			4,822			9,223			9,455
Equity in net income (loss) of investment funds accounted for using the equity method	8,472			28,069			30,402			31,090			32,706			36,541			80,794
Other income (loss)	3,113			74			547			(342		)	(1,994		)	3,187			(2,776		)
Total revenues	1,410,809			1,283,955			1,421,108			1,479,554			1,407,537			2,694,764			2,726,713
Expenses
Losses and loss adjustment expenses	(726,153		)	(636,860		)	(678,875		)	(1,046,141		)	(689,860		)	(1,363,013		)	(1,242,430		)
Acquisition expenses	(202,838		)	(191,376		)	(208,879		)	(193,854		)	(190,436		)	(394,214		)	(372,725		)
Other operating expenses	(176,181		)	(175,015		)	(169,624		)	(170,127		)	(169,981		)	(351,196		)	(344,700		)
Corporate expenses	(22,512		)	(15,312		)	(13,986		)	(17,098		)	(24,876		)	(37,824		)	(52,668		)
Amortization of intangible assets	(26,472		)	(26,736		)	(31,836		)	(31,824		)	(30,824		)	(53,208		)	(62,118		)
Interest expense	(30,344		)	(30,636		)	(30,496		)	(29,510		)	(28,749		)	(60,980		)	(57,425		)
Net foreign exchange gains (losses)	53,706			(19,721		)	(28,807		)	(28,028		)	(39,543		)	33,985			(58,947		)
Total expenses	(1,130,794		)	(1,095,656		)	(1,162,503		)	(1,516,582		)	(1,174,269		)	(2,226,450		)	(2,191,013		)
Income (loss) before income taxes	280,015			188,299			258,605			(37,028		)	233,268			468,314			535,700
Income tax expense	(23,668		)	(21,915		)	(56,813		)	(8,189		)	(34,169		)	(45,583		)	(62,566		)
Net income (loss)	256,347			166,384			201,792			(45,217		)	199,099			422,731			473,134
Net (income) loss attributable to noncontrolling interests	(12,701		)	(15,961		)	12,848			11,561			(13,932		)	(28,662		)	(34,840		)
Net income (loss) attributable to Arch	243,646			150,423			214,640			(33,656		)	185,167			394,069			438,294
Preferred dividends	(10,403		)	(10,437		)	(11,105		)	(12,369		)	(11,349		)	(20,840		)	(22,567		)
Loss on redemption of preferred shares	—			(2,710		)	—			(6,735		)	—			(2,710		)	—
Net income (loss) available to Arch common shareholders	$	233,243		$	137,276		$	203,535		$	(52,760	)	$	173,818		$	370,519		$	415,727
Comprehensive income available to Arch	$	183,498		$	48,162		$	203,002		$	17,585		$	279,285		$	231,660		$	631,276
Net income (loss) per common share and common share equivalent
Basic	$	0.58		$	0.34		$	0.50		$	(0.13	)	$	0.43		$	0.91		$	1.03
Diluted (1)	$	0.56		$	0.33		$	0.49		$	(0.13	)	$	0.42		$	0.89		$	1.00
Weighted average common shares and common share equivalents outstanding
Basic	404,800,421			407,539,728			406,280,748			404,656,353			403,459,992			406,162,508			402,786,129
Diluted (1)	413,111,205			417,893,802			418,735,890			404,656,353			417,733,938			415,460,756			417,421,896

(1) Due to the net loss recorded in the 2017 third quarter, diluted weighted average common shares and common share equivalents outstanding for such period do not include the effect of dilutive securities since the inclusion of such securities is anti-dilutive to per share results.

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,
	2018			2018			2017			2017			2017
Assets
Investments:
Fixed maturities available for sale, at fair value	$	14,128,989		$	14,348,941		$	13,876,003		$	13,792,903		$	13,671,011
Short-term investments available for sale, at fair value	1,096,798			967,389			1,469,042			1,646,036			914,356
Collateral received under securities lending, at fair value	236,956			367,043			476,615			543,252			627,843
Equity securities, at fair value	534,482			543,650			495,804			477,143			461,017
Other investments available for sale, at fair value	—			—			264,989			260,339			248,661
Investments accounted for using the fair value option	4,111,611			4,119,139			4,216,237			4,249,634			3,827,408
Investments accounted for using the equity method	1,428,582			1,394,548			1,041,322			962,574			948,856
Total investments	21,537,418			21,740,710			21,840,012			21,931,881			20,699,152
Cash	526,628			680,891			606,199			862,361			740,320
Accrued investment income	114,307			106,114			113,133			101,104			108,562
Securities pledged under securities lending, at fair value	230,064			358,152			464,917			528,212			610,121
Premiums receivable	1,351,310			1,375,080			1,135,249			1,269,678			1,314,564
Reinsurance recoverable on unpaid and paid losses and loss adjustment expenses	2,727,303			2,510,119			2,540,143			2,506,015			2,155,107
Contractholder receivables	2,044,322			2,002,469			1,978,414			1,864,348			1,826,966
Ceded unearned premiums	1,014,663			996,772			926,611			947,135			961,330
Deferred acquisition costs	569,817			596,264			535,824			531,196			506,748
Receivable for securities sold	143,809			217,224			205,536			385,952			212,512
Goodwill and intangible assets	593,008			626,004			652,611			684,405			712,975
Other assets	1,000,471			922,156			1,053,009			1,012,510			1,014,282
Total assets	$	31,853,120		$	32,131,955		$	32,051,658		$	32,624,797		$	30,862,639
Liabilities
Reserve for losses and loss adjustment expenses	$	11,424,337		$	11,496,205		$	11,383,792		$	11,351,267		$	10,520,511
Unearned premiums	3,833,540			3,885,297			3,622,314			3,751,550			3,679,651
Reinsurance balances payable	411,082			379,728			323,496			352,006			361,000
Contractholder payables	2,044,322			2,002,469			1,978,414			1,864,348			1,826,966
Collateral held for insured obligations	257,396			253,709			240,183			345,726			338,737
Senior notes	1,733,211			1,733,043			1,732,884			1,732,726			1,732,570
Revolving credit agreement borrowings	572,289			755,294			816,132			826,242			686,452
Securities lending payable	236,948			367,034			476,605			543,243			627,852
Payable for securities purchased	356,583			282,731			449,186			1,091,464			458,722
Other liabilities	752,399			765,948			782,717			788,354			648,099
Total liabilities	21,622,107			21,921,458			21,805,723			22,646,926			20,880,560
Redeemable noncontrolling interests	206,105			206,013			205,922			205,829			205,736
Shareholders’ equity
Non-cumulative preferred shares	780,000			780,000			872,555			772,555			772,555
Convertible non-voting common equivalent preferred shares	—			—			489,627			489,627			489,627
Common shares	633			630			611			610			609
Additional paid-in capital	1,760,606			1,737,978			1,230,617			1,212,960			1,196,884
Retained earnings	9,083,202			8,849,959			8,562,889			8,359,354			8,412,114
Accumulated other comprehensive income (loss), net of deferred income tax	(194,157		)	(134,009		)	118,044			129,682			78,441
Common shares held in treasury, at cost	(2,266,529		)	(2,084,186		)	(2,077,741		)	(2,053,644		)	(2,051,343		)
Total shareholders’ equity available to Arch	9,163,755			9,150,372			9,196,602			8,911,144			8,898,887
Non-redeemable noncontrolling interests	861,153			854,112			843,411			860,898			877,456
Total shareholders’ equity	10,024,908			10,004,484			10,040,013			9,772,042			9,776,343
Total liabilities, noncontrolling interests and shareholders’ equity	$	31,853,120		$	32,131,955		$	32,051,658		$	32,624,797		$	30,862,639
Common shares and common share equivalents outstanding, net of treasury shares	405,436,637			410,047,266			409,956,417			409,621,719			409,062,477
Book value per common share (1)	$	20.68		$	20.41		$	20.30		$	19.87		$	19.87

(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,
	2018			2018			2017			2017			2017			2018			2017
Non-cumulative preferred shares
Balance at beginning of period	$	780,000		$	872,555		$	772,555		$	772,555		$	772,555		$	872,555		$	772,555
Preferred shares issued	—			—			100,000			230,000			—			—			—
Preferred shares redeemed	—			(92,555		)	—			(230,000		)	—			(92,555		)	—
Balance at end of period	$	780,000		$	780,000		$	872,555		$	772,555		$	772,555		$	780,000		$	772,555
Convertible non-voting common equivalent preferred shares
Balance at beginning of period	—			489,627			489,627			489,627			1,101,304			489,627			1,101,304
Preferred shares converted to common shares	—			(489,627		)	—			—			(611,677		)	(489,627		)	(611,677		)
Balance at end of period	—			—			489,627			489,627			489,627			—			489,627
Common shares
Balance at beginning of period	630			611			610			609			583			611			582
Common shares issued, net	3			19			1			1			26			22			27
Balance at end of period	633			630			611			610			609			633			609
Additional paid-in capital
Balance at beginning of period	1,737,978			1,230,617			1,212,960			1,196,884			548,053			1,230,617			531,687
Preferred shares converted to common shares	—			489,608			—			—			611,653			489,608			611,653
Issue costs on preferred shares	—			—			(2,360		)	(7,946		)	—			—			—
Reversal of original issue costs on redeemed preferred shares	—			2,710			—			6,735			—			2,710			—
All other	22,628			15,043			20,017			17,287			37,178			37,671			53,544
Balance at end of period	1,760,606			1,737,978			1,230,617			1,212,960			1,196,884			1,760,606			1,196,884
Retained earnings
Balance at beginning of period	8,849,959			8,562,889			8,359,354			8,412,114			8,238,296			8,562,889			7,996,701
Cumulative effect of an accounting change	—			149,794			—			—			—			149,794			(314		)
Balance at beginning of period, as adjusted	8,849,959			8,712,683			8,359,354			8,412,114			8,238,296			8,712,683			7,996,387
Net income (loss)	256,347			166,384			201,792			(45,217		)	199,099			422,731			473,134
Amounts attributable to noncontrolling interests	(12,701		)	(15,961		)	12,848			11,561			(13,932		)	(28,662		)	(34,840		)
Preferred share dividends	(10,403		)	(10,437		)	(11,105		)	(12,369		)	(11,349		)	(20,840		)	(22,567		)
Loss on redemption of preferred shares	—			(2,710		)	—			(6,735		)	—			(2,710		)	—
Balance at end of period	9,083,202			8,849,959			8,562,889			8,359,354			8,412,114			9,083,202			8,412,114
Accumulated other comprehensive income (loss)
Balance at beginning of period	(134,009		)	118,044			129,682			78,441			(15,677		)	118,044			(114,541		)
Cumulative effect adjustment of an accounting change	—			(149,794		)	—			—			—			(149,794		)	—
Change in unrealized appreciation (decline) in value of available-for-sale investments, net of deferred income tax	(47,117		)	(103,844		)	(29,002		)	42,550			75,745			(150,961		)	171,493
Change in foreign currency translation adjustments	(13,031		)	1,585			17,364			8,691			18,373			(11,446		)	21,489
Balance at end of period	(194,157		)	(134,009		)	118,044			129,682			78,441			(194,157		)	78,441
Common shares held in treasury, at cost
Balance at beginning of period	(2,084,186		)	(2,077,741		)	(2,053,644		)	(2,051,343		)	(2,039,270		)	(2,077,741		)	(2,034,570		)
Shares repurchased for treasury	(182,343		)	(6,445		)	(24,097		)	(2,301		)	(12,073		)	(188,788		)	(16,773		)
Balance at end of period	(2,266,529		)	(2,084,186		)	(2,077,741		)	(2,053,644		)	(2,051,343		)	(2,266,529		)	(2,051,343		)
Total shareholders’ equity available to Arch	9,163,755			9,150,372			9,196,602			8,911,144			8,898,887			9,163,755			8,898,887
Non-redeemable noncontrolling interests	861,153			854,112			843,411			860,898			877,456			861,153			877,456
Total shareholders’ equity	$	10,024,908		$	10,004,484		$	10,040,013		$	9,772,042		$	9,776,343		$	10,024,908		$	9,776,343

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,
	2018			2018			2017			2017			2017			2018			2017
Operating Activities
Net income (loss)	$	256,347		$	166,384		$	201,792		$	(45,217	)	$	199,099		$	422,731		$	473,134
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized (gains) losses	75,447			101,995			(32,573		)	(66,959		)	(34,130		)	177,442			(74,985		)
Net impairment losses included in earnings	470			162			1,723			1,878			1,730			632			3,537
Equity in net income or loss of investment funds accounted for using the equity method and other income or loss	5,840			(19,383		)	(15,756		)	(16,255		)	(11,388		)	(13,543		)	(47,529		)
Amortization of intangible assets	26,472			26,736			31,836			31,824			30,824			53,208			62,118
Share-based compensation	20,755			14,664			9,490			15,569			27,082			35,419			42,739
Changes in:
Reserve for losses and loss adjustment expenses, net	(164,210		)	86,319			11,882			422,310			127,315			(77,891		)	180,342
Unearned premiums, net	(37,867		)	177,645			(113,740		)	63,517			7,821			139,778			167,064
Premiums receivable	(3,178		)	(233,772		)	135,738			55,355			(46,148		)	(236,950		)	(222,498		)
Deferred acquisition costs	(4,764		)	(30,347		)	(4,747		)	(20,078		)	(11,825		)	(35,111		)	(53,553		)
Reinsurance balances payable	35,327			53,634			(28,999		)	(12,584		)	29,998			88,961			50,112
Other items, net	(113,933		)	56,143			(162,477		)	97,814			29,499			(57,790		)	(46,946		)
Net cash provided by operating activities	96,706			400,180			34,169			527,174			349,877			496,886			533,535
Investing Activities
Purchases of fixed maturity investments	(7,186,303		)	(9,681,267		)	(8,727,784		)	(8,179,803		)	(9,422,408		)	(16,867,570		)	(19,899,326		)
Purchases of equity securities	(302,663		)	(377,000		)	(353,881		)	(266,980		)	(256,322		)	(679,663		)	(400,155		)
Purchases of other investments	(494,693		)	(522,454		)	(614,096		)	(522,824		)	(456,665		)	(1,017,147		)	(883,704		)
Proceeds from sales of fixed maturity investments	7,411,396			8,679,147			8,057,305			8,017,794			9,224,934			16,090,543			19,611,680
Proceeds from sales of equity securities	330,757			291,311			304,528			278,809			219,717			622,068			473,064
Proceeds from sales, redemptions and maturities of other investments	336,732			436,566			590,036			324,087			296,976			773,298			614,494
Proceeds from redemptions and maturities of fixed maturity investments	224,417			287,031			159,796			299,680			273,223			511,448			447,941
Net settlements of derivative instruments	(31,572		)	36,070			(7,611		)	(14,968		)	(2,063		)	4,498			(5,984		)
Net (purchases) sales of short-term investments	(143,417		)	595,318			230,099			(519,450		)	(47,352		)	451,901			(445,203		)
Change in cash collateral related to securities lending	14,737			161,567			(136,152		)	(27,001		)	(5,253		)	176,304			175,693
Acquisitions, net of cash	—			—			—			(27,709		)	—			—			—
Purchases of fixed assets	(9,002		)	(4,240		)	(5,979		)	(5,759		)	(5,909		)	(13,242		)	(11,103		)
Other	9,924			40,037			24,495			60,601			10,420			49,961			33,488
Net cash provided by (used for) investing activities	160,313			(57,914		)	(479,244		)	(583,523		)	(170,702		)	102,399			(289,115		)
Financing Activities
Proceeds from issuance of preferred shares, net	—			—			97,640			222,054			—			—			—
Redemption of preferred shares	—			(92,555		)	—			(230,000		)	—			(92,555		)	—
Purchases of common shares under share repurchase program	(170,276		)	(3,299		)	—			—			—			(173,575		)	—
Proceeds from common shares issued, net	(11,072		)	(2,779		)	(13,564		)	(646		)	(2,848		)	(13,851		)	(6,838		)
Proceeds from borrowings	90,994			39,585			14,500			238,915			—			130,579			—
Repayments of borrowings	(272,000		)	(101,000		)	(25,000		)	(100,000		)	(50,000		)	(373,000		)	(72,000		)
Change in cash collateral related to securities lending	(14,737		)	(161,567		)	136,152			27,001			5,253			(176,304		)	(175,693		)
Dividends paid to redeemable noncontrolling interests	(4,497		)	(4,497		)	(4,498		)	(4,497		)	(4,497		)	(8,994		)	(8,994		)
Other	(2,133		)	(2,356		)	(2,616		)	(7,582		)	(36,680		)	(4,489		)	(41,698		)
Preferred dividends paid	(10,403		)	(10,437		)	(11,105		)	(12,369		)	(11,349		)	(20,840		)	(22,567		)
Net cash provided by (used for) financing activities	(394,124		)	(338,905		)	191,509			132,876			(100,121		)	(733,029		)	(327,790		)
Effects of exchange rate changes on foreign currency cash and restricted cash	(12,042		)	1,611			236			8,272			6,998			(10,431		)	9,616
Increase (decrease) in cash and restricted cash	(149,147		)	4,972			(253,330		)	84,799			86,052			(144,175		)	(73,754		)
Cash and restricted cash, beginning of period	732,256			727,284			980,614			895,815			809,763			727,284			969,569
Cash and restricted cash, end of period	$	583,109		$	732,256		$	727,284		$	980,614		$	895,815		$	583,109		$	895,815
Income taxes paid (received)	$	3,346		$	(49,857	)	$	3,874		$	43,972		$	3,224		$	(46,511	)	$	3,935
Interest paid	$	52,996		$	7,861		$	52,761		$	6,578		$	52,206		$	60,857		$	58,035
Net cash provided by operating activities, excluding the ‘other’ segment	$	34,190		$	370,261		$	30,190		$	440,028		$	278,021		$	404,451		$	399,755

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 President and Chief Executive Officer of Arch Capital and the Chief Financial Officer of Arch Capital. 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. Arch Mortgage Insurance Company and United Guaranty Residential Insurance 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, items related to 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, 2018
	Insurance			Reinsurance			Mortgage			Sub-total (Core)			Other			Total
Gross premiums written (1)	$	769,372		$	490,327		$	330,990		$	1,591,202		$	175,175		$	1,696,544
Premiums ceded	(245,265		)	(136,247		)	(50,867		)	(432,892		)	(34,589		)	(397,648		)
Net premiums written	524,107			354,080			280,123			1,158,310			140,586			1,298,896
Change in unearned premiums	22,342			(13,762		)	10,355			18,935			18,932			37,867
Net premiums earned	546,449			340,318			290,478			1,177,245			159,518			1,336,763
Other underwriting income (loss)	—			(129		)	3,315			3,186			688			3,874
Losses and loss adjustment expenses	(357,465		)	(229,956		)	(21,591		)	(609,012		)	(117,141		)	(726,153		)
Acquisition expenses	(90,670		)	(50,142		)	(27,737		)	(168,549		)	(34,289		)	(202,838		)
Other operating expenses	(92,680		)	(35,678		)	(38,729		)	(167,087		)	(9,094		)	(176,181		)
Underwriting income (loss)	$	5,634		$	24,413		$	205,736		235,783			(318		)	235,465
Net investment income										107,761			27,907			135,668
Net realized gains (losses)										(59,545		)	(17,066		)	(76,611		)
Net impairment losses recognized in earnings										(470		)	—			(470		)
Equity in net income (loss) of investment funds accounted for using the equity method										8,472			—			8,472
Other income (loss)										3,113			—			3,113
Corporate expenses (2)										(15,604		)	—			(15,604		)
UGC transaction costs and other (2)										(6,908		)	—			(6,908		)
Amortization of intangible assets										(26,472		)	—			(26,472		)
Interest expense										(26,058		)	(4,286		)	(30,344		)
Net foreign exchange gains (losses)										46,211			7,495			53,706
Income before income taxes										266,283			13,732			280,015
Income tax expense										(23,644		)	(24		)	(23,668		)
Net income										242,639			13,708			256,347
Dividends attributable to redeemable noncontrolling interests										—			(4,585		)	(4,585		)
Amounts attributable to nonredeemable noncontrolling interests										—			(8,116		)	(8,116		)
Net income available to Arch										242,639			1,007			243,646
Preferred dividends										(10,403		)	—			(10,403		)
Net income available to Arch common shareholders										$	232,236		$	1,007		$	233,243
Underwriting Ratios
Loss ratio	65.4		%	67.6		%	7.4		%	51.7		%	73.4		%	54.3		%
Acquisition expense ratio	16.6		%	14.7		%	9.5		%	14.3		%	21.5		%	15.2		%
Other operating expense ratio	17.0		%	10.5		%	13.3		%	14.2		%	5.7		%	13.2		%
Combined ratio	99.0		%	92.8		%	30.2		%	80.2		%	100.6		%	82.7		%
Net premiums written to gross premiums written	68.1		%	72.2		%	84.6		%	72.8		%	80.3		%	76.6		%
Total investable assets										$	19,172,010		$	2,647,841		$	21,819,851
Total assets										28,515,604			3,337,516			31,853,120
Total liabilities										19,473,218			2,148,889			21,622,107

(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, 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.

11

Arch Capital Group Ltd. and Subsidiaries

Segment Information

(U.S. Dollars in thousands)	Six Months Ended
	June 30, 2018
	Insurance			Reinsurance			Mortgage			Sub-total (Core)			Other			Total
Gross premiums written (1)	$	1,592,750		$	1,067,810		$	652,168		$	3,312,807		$	389,045		$	3,534,758
Premiums ceded	(492,445		)	(331,977		)	(97,004		)	(921,505		)	(68,907		)	(823,318		)
Net premiums written	1,100,305			735,833			555,164			2,391,302			320,138			2,711,440
Change in unearned premiums	(15,119		)	(116,343		)	15,556			(115,906		)	(23,872		)	(139,778		)
Net premiums earned	1,085,186			619,490			570,720			2,275,396			296,266			2,571,662
Other underwriting income (loss)	—			1,103			6,731			7,834			1,389			9,223
Losses and loss adjustment expenses	(711,195		)	(371,631		)	(65,057		)	(1,147,883		)	(215,130		)	(1,363,013		)
Acquisition expenses	(175,839		)	(98,461		)	(54,304		)	(328,604		)	(65,610		)	(394,214		)
Other operating expenses	(184,654		)	(71,249		)	(77,500		)	(333,403		)	(17,793		)	(351,196		)
Underwriting income (loss)	$	13,498		$	79,252		$	380,590		473,340			(878		)	472,462
Net investment income										208,004			54,388			262,392
Net realized gains (losses)										(171,404		)	(16,205		)	(187,609		)
Net impairment losses recognized in earnings										(632		)	—			(632		)
Equity in net income (loss) of investment funds accounted for using the equity method										36,541			—			36,541
Other income (loss)										3,187			—			3,187
Corporate expenses (2)										(30,086		)	—			(30,086		)
UGC transaction costs and other (2)										(7,738		)	—			(7,738		)
Amortization of intangible assets										(53,208		)	—			(53,208		)
Interest expense										(51,965		)	(9,015		)	(60,980		)
Net foreign exchange gains (losses)										31,172			2,813			33,985
Income before income taxes										437,211			31,103			468,314
Income tax (expense) benefit										(45,556		)	(27		)	(45,583		)
Net income										391,655			31,076			422,731
Dividends attributable to redeemable noncontrolling interests										—			(9,170		)	(9,170		)
Amounts attributable to nonredeemable noncontrolling interests										—			(19,492		)	(19,492		)
Net income available to Arch										391,655			2,414			394,069
Preferred dividends										(20,840		)	—			(20,840		)
Loss on redemption of preferred shares										(2,710		)	—			(2,710		)
Net income available to Arch common shareholders										$	368,105		$	2,414		$	370,519
Underwriting Ratios
Loss ratio	65.5		%	60.0		%	11.4		%	50.4		%	72.6		%	53.0		%
Acquisition expense ratio	16.2		%	15.9		%	9.5		%	14.4		%	22.1		%	15.3		%
Other operating expense ratio	17.0		%	11.5		%	13.6		%	14.7		%	6.0		%	13.7		%
Combined ratio	98.7		%	87.4		%	34.5		%	79.5		%	100.7		%	82.0		%
Net premiums written to gross premiums written	69.1		%	68.9		%	85.1		%	72.2		%	82.3		%	76.7		%

(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, 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) benefit										(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.

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,
	2018			2018			2017			2017			2017			2018			2017
Gross premiums written	$	769,372		$	823,378		$	767,456		$	787,447		$	743,902		$	1,592,750		$	1,526,183
Premiums ceded	(245,265		)	(247,180		)	(254,589		)	(222,516		)	(247,446		)	(492,445		)	(481,541		)
Net premiums written	524,107			576,198			512,867			564,931			496,456			1,100,305			1,044,642
Change in unearned premiums	22,342			(37,461		)	41,766			(29,766		)	21,118			(15,119		)	(21,422		)
Net premiums earned	546,449			538,737			554,633			535,165			517,574			1,085,186			1,023,220
Losses and loss adjustment expenses	(357,465		)	(353,730		)	(370,069		)	(568,795		)	(350,939		)	(711,195		)	(683,580		)
Acquisition expenses	(90,670		)	(85,169		)	(87,261		)	(82,638		)	(78,872		)	(175,839		)	(153,740		)
Other operating expenses	(92,680		)	(91,974		)	(88,256		)	(90,875		)	(92,267		)	(184,654		)	(180,393		)
Underwriting income (loss)	$	5,634		$	7,864		$	9,047		$	(207,143	)	$	(4,504	)	$	13,498		$	5,507
Underwriting Ratios
Loss ratio	65.4		%	65.7		%	66.7		%	106.3		%	67.8		%	65.5		%	66.8		%
Acquisition expense ratio	16.6		%	15.8		%	15.7		%	15.4		%	15.2		%	16.2		%	15.0		%
Other operating expense ratio	17.0		%	17.1		%	15.9		%	17.0		%	17.8		%	17.0		%	17.6		%
Combined ratio	99.0		%	98.6		%	98.3		%	138.7		%	100.8		%	98.7		%	99.4		%
Catastrophic activity and prior year development:
Current accident year catastrophic events, net of
reinsurance and reinstatement premiums	1.4		%	0.2		%	(1.3		)%	40.1		%	1.6		%	0.8		%	1.1		%
Net (favorable) adverse development in prior year loss
reserves, net of related adjustments	(0.9		)%	(0.3		)%	(0.1		)%	(0.3		)%	(0.2		)%	(0.6		)%	(0.2		)%
Combined ratio excluding catastrophic activity and prior year development (1)	98.5		%	98.7		%	99.7		%	98.9		%	99.4		%	98.5		%	98.5		%
Net premiums written to gross premiums written	68.1		%	70.0		%	66.8		%	71.7		%	66.7		%	69.1		%	68.4		%

(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,
	2018				2018				2017				2017				2017				2018				2017
Net premiums written
Professional lines (1)	$	108,298	20.7	%	$	119,789	20.8	%	$	112,987	22.0	%	$	120,509	21.3	%	$	110,784	22.3	%	$	228,087	20.7	%	$	219,252	21.0	%
Programs	100,178		19.1	%	96,556		16.8	%	83,428		16.3	%	109,805		19.4	%	93,428		18.8	%	196,734		17.9	%	193,385		18.5	%
Construction and national accounts	66,384		12.7	%	98,428		17.1	%	88,144		17.2	%	66,053		11.7	%	73,474		14.8	%	164,812		15.0	%	173,451		16.6	%
Travel, accident and health	63,222		12.1	%	80,524		14.0	%	58,134		11.3	%	71,386		12.6	%	52,690		10.6	%	143,746		13.1	%	118,218		11.3	%
Property, energy, marine and aviation	62,121		11.9	%	52,127		9.0	%	37,709		7.4	%	48,396		8.6	%	46,031		9.3	%	114,248		10.4	%	86,135		8.2	%
Excess and surplus casualty (2)	40,042		7.6	%	41,922		7.3	%	44,604		8.7	%	43,853		7.8	%	45,222		9.1	%	81,964		7.4	%	91,054		8.7	%
Lenders products	22,290		4.3	%	21,984		3.8	%	24,971		4.9	%	25,732		4.6	%	21,459		4.3	%	44,274		4.0	%	46,164		4.4	%
Other (3)	61,572		11.7	%	64,868		11.3	%	62,890		12.3	%	79,197		14.0	%	53,368		10.7	%	126,440		11.5	%	116,983		11.2	%
Total	$	524,107	100.0	%	$	576,198	100.0	%	$	512,867	100.0	%	$	564,931	100.0	%	$	496,456	100.0	%	$	1,100,305	100.0	%	$	1,044,642	100.0	%
Client location
United States	$	426,145	81.3	%	$	456,759	79.3	%	$	417,731	81.5	%	$	456,713	80.8	%	$	413,537	83.3	%	$	882,904	80.2	%	$	870,116	83.3	%
Europe	46,364		8.8	%	75,306		13.1	%	44,737		8.7	%	43,984		7.8	%	40,591		8.2	%	121,670		11.1	%	96,644		9.3	%
Asia and Pacific	22,268		4.2	%	21,500		3.7	%	28,510		5.6	%	33,406		5.9	%	19,171		3.9	%	43,768		4.0	%	38,146		3.7	%
Other	29,330		5.6	%	22,633		3.9	%	21,889		4.3	%	30,828		5.5	%	23,157		4.7	%	51,963		4.7	%	39,736		3.8	%
Total	$	524,107	100.0	%	$	576,198	100.0	%	$	512,867	100.0	%	$	564,931	100.0	%	$	496,456	100.0	%	$	1,100,305	100.0	%	$	1,044,642	100.0	%
Underwriting location
United States	$	415,375	79.3	%	$	449,994	78.1	%	$	408,440	79.6	%	$	454,274	80.4	%	$	404,137	81.4	%	$	865,369	78.6	%	$	852,753	81.6	%
Europe	87,783		16.7	%	110,976		19.3	%	86,526		16.9	%	94,711		16.8	%	75,254		15.2	%	198,759		18.1	%	163,599		15.7	%
Other	20,949		4.0	%	15,228		2.6	%	17,901		3.5	%	15,946		2.8	%	17,065		3.4	%	36,177		3.3	%	28,290		2.7	%
Total	$	524,107	100.0	%	$	576,198	100.0	%	$	512,867	100.0	%	$	564,931	100.0	%	$	496,456	100.0	%	$	1,100,305	100.0	%	$	1,044,642	100.0	%
Net premiums earned
Professional lines (1)	$	112,226	20.5	%	$	116,018	21.5	%	$	113,978	20.6	%	$	113,146	21.1	%	$	108,375	20.9	%	$	228,244	21.0	%	$	217,013	21.2	%
Programs	97,333		17.8	%	95,011		17.6	%	97,524		17.6	%	94,353		17.6	%	87,582		16.9	%	192,344		17.7	%	172,762		16.9	%
Construction and national accounts	81,784		15.0	%	77,212		14.3	%	88,467		16.0	%	77,779		14.5	%	80,848		15.6	%	158,996		14.7	%	158,271		15.5	%
Travel, accident and health	74,754		13.7	%	66,835		12.4	%	69,305		12.5	%	66,136		12.4	%	63,436		12.3	%	141,589		13.0	%	121,917		11.9	%
Property, energy, marine and aviation	50,840		9.3	%	48,603		9.0	%	47,372		8.5	%	46,906		8.8	%	41,423		8.0	%	99,443		9.2	%	79,501		7.8	%
Excess and surplus casualty (2)	40,049		7.3	%	46,544		8.6	%	47,445		8.6	%	47,852		8.9	%	48,850		9.4	%	86,593		8.0	%	99,857		9.8	%
Lenders products	23,161		4.2	%	22,816		4.2	%	24,883		4.5	%	23,499		4.4	%	24,562		4.7	%	45,977		4.2	%	48,661		4.8	%
Other (3)	66,302		12.1	%	65,698		12.2	%	65,659		11.8	%	65,494		12.2	%	62,498		12.1	%	132,000		12.2	%	125,238		12.2	%
Total	$	546,449	100.0	%	$	538,737	100.0	%	$	554,633	100.0	%	$	535,165	100.0	%	$	517,574	100.0	%	$	1,085,186	100.0	%	$	1,023,220	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,
	2018			2018			2017			2017			2017			2018			2017
Gross premiums written	$	490,327		$	577,483		$	289,348		$	422,083		$	453,186		$	1,067,810		$	928,968
Premiums ceded	(136,247		)	(195,730		)	(79,182		)	(105,389		)	(115,262		)	(331,977		)	(281,354		)
Net premiums written	354,080			381,753			210,166			316,694			337,924			735,833			647,614
Change in unearned premiums	(13,762		)	(102,581		)	49,329			6,879			(23,222		)	(116,343		)	(88,061		)
Net premiums earned	340,318			279,172			259,495			323,573			314,702			619,490			559,553
Other underwriting income	(129		)	1,232			10,193			1,728			(279		)	1,103			(585		)
Losses and loss adjustment expenses	(229,956		)	(141,675		)	(142,254		)	(318,609		)	(207,606		)	(371,631		)	(313,060		)
Acquisition expenses	(50,142		)	(48,319		)	(66,612		)	(57,340		)	(51,151		)	(98,461		)	(97,298		)
Other operating expenses	(35,678		)	(35,571		)	(36,205		)	(36,214		)	(36,711		)	(71,249		)	(74,244		)
Underwriting income (loss)	$	24,413		$	54,839		$	24,617		$	(86,862	)	$	18,955		$	79,252		$	74,366
Underwriting Ratios
Loss ratio	67.6		%	50.7		%	54.8		%	98.5		%	66.0		%	60.0		%	55.9		%
Acquisition expense ratio	14.7		%	17.3		%	25.7		%	17.7		%	16.3		%	15.9		%	17.4		%
Other operating expense ratio	10.5		%	12.7		%	14.0		%	11.2		%	11.7		%	11.5		%	13.3		%
Combined ratio	92.8		%	80.7		%	94.5		%	127.4		%	94.0		%	87.4		%	86.6		%
Catastrophic activity and prior year development:
Current accident year catastrophic events, net of
reinsurance and reinstatement premiums	2.2		%	0.3		%	3.0		%	41.2		%	5.2		%	1.3		%	4.7		%
Net (favorable) adverse development in prior year loss
reserves, net of related adjustments	(9.4		)%	(13.0		)%	(11.7		)%	(10.7		)%	(12.3		)%	(11.0		)%	(17.6		)%
Combined ratio excluding catastrophic activity and prior year development (1)	100.0		%	93.4		%	103.2		%	96.9		%	101.1		%	97.1		%	99.5		%
Net premiums written to gross premiums written	72.2		%	66.1		%	72.6		%	75.0		%	74.6		%	68.9		%	69.7		%

(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,
	2018				2018				2017				2017				2017				2018				2017
Net premiums written
Other specialty (1)	$	155,081	43.8	%	$	138,992	36.4	%	$	88,067	41.9	%	$	101,400	32.0	%	$	155,328	46.0	%	$	294,073	40.0	%	$	269,746	41.7	%
Casualty (2)	68,113		19.2	%	130,176		34.1	%	53,309		25.4	%	113,446		35.8	%	63,054		18.7	%	198,289		26.9	%	173,674		26.8	%
Property excluding property catastrophe (3)	77,876		22.0	%	85,170		22.3	%	35,248		16.8	%	63,943		20.2	%	69,115		20.5	%	163,046		22.2	%	144,502		22.3	%
Property catastrophe	35,045		9.9	%	7,632		2.0	%	12,382		5.9	%	28,123		8.9	%	37,127		11.0	%	42,677		5.8	%	29,650		4.6	%
Marine and aviation	10,061		2.8	%	10,012		2.6	%	12,249		5.8	%	2,037		0.6	%	8,932		2.6	%	20,073		2.7	%	18,473		2.9	%
Other (4)	7,904		2.2	%	9,771		2.6	%	8,911		4.2	%	7,745		2.4	%	4,368		1.3	%	17,675		2.4	%	11,569		1.8	%
Total	$	354,080	100.0	%	$	381,753	100.0	%	$	210,166	100.0	%	$	316,694	100.0	%	$	337,924	100.0	%	$	735,833	100.0	%	$	647,614	100.0	%
Pro rata	$	212,858	60.1	%	$	152,165	39.9	%	$	171,837	81.8	%	$	206,948	65.3	%	$	200,893	59.4	%	$	365,023	49.6	%	$	329,909	50.9	%
Excess of loss	141,222		39.9	%	229,588		60.1	%	38,329		18.2	%	109,746		34.7	%	137,031		40.6	%	370,810		50.4	%	317,705		49.1	%
Total	$	354,080	100.0	%	$	381,753	100.0	%	$	210,166	100.0	%	$	316,694	100.0	%	$	337,924	100.0	%	$	735,833	100.0	%	$	647,614	100.0	%
Client location
United States	$	136,249	38.5	%	$	123,638	32.4	%	$	88,626	42.2	%	$	122,863	38.8	%	$	114,481	33.9	%	$	259,887	35.3	%	$	227,740	35.2	%
Europe	142,667		40.3	%	201,175		52.7	%	89,122		42.4	%	95,197		30.1	%	139,479		41.3	%	343,842		46.7	%	282,431		43.6	%
Bermuda	13,903		3.9	%	15,150		4.0	%	1,044		0.5	%	49,982		15.8	%	24,869		7.4	%	29,053		3.9	%	37,978		5.9	%
Asia and Pacific	37,635		10.6	%	18,445		4.8	%	5,938		2.8	%	30,531		9.6	%	31,237		9.2	%	56,080		7.6	%	49,664		7.7	%
Other	23,626		6.7	%	23,345		6.1	%	25,436		12.1	%	18,121		5.7	%	27,858		8.2	%	46,971		6.4	%	49,801		7.7	%
Total	$	354,080	100.0	%	$	381,753	100.0	%	$	210,166	100.0	%	$	316,694	100.0	%	$	337,924	100.0	%	$	735,833	100.0	%	$	647,614	100.0	%
Underwriting location
Bermuda	$	145,568	41.1	%	$	78,714	20.6	%	$	61,474	29.3	%	$	111,422	35.2	%	$	135,602	40.1	%	$	224,282	30.5	%	$	177,785	27.5	%
United States	100,271		28.3	%	115,612		30.3	%	76,611		36.5	%	102,504		32.4	%	102,692		30.4	%	215,883		29.3	%	220,264		34.0	%
Europe and other	108,241		30.6	%	187,427		49.1	%	72,081		34.3	%	102,768		32.5	%	99,630		29.5	%	295,668		40.2	%	249,565		38.5	%
Total	$	354,080	100.0	%	$	381,753	100.0	%	$	210,166	100.0	%	$	316,694	100.0	%	$	337,924	100.0	%	$	735,833	100.0	%	$	647,614	100.0	%
Net premiums earned
Other specialty (1)	$	149,648	44.0	%	$	103,717	37.2	%	$	100,946	38.9	%	$	96,090	29.7	%	$	141,565	45.0	%	$	253,365	40.9	%	$	211,530	37.8	%
Casualty (2)	85,009		25.0	%	69,372		24.8	%	70,996		27.4	%	117,255		36.2	%	79,903		25.4	%	154,381		24.9	%	152,871		27.3	%
Property excluding property catastrophe (3)	70,849		20.8	%	68,754		24.6	%	57,668		22.2	%	65,049		20.1	%	62,884		20.0	%	139,603		22.5	%	132,736		23.7	%
Property catastrophe	15,716		4.6	%	18,387		6.6	%	11,325		4.4	%	30,039		9.3	%	15,759		5.0	%	34,103		5.5	%	31,936		5.7	%
Marine and aviation	10,089		3.0	%	9,389		3.4	%	9,937		3.8	%	6,801		2.1	%	9,986		3.2	%	19,478		3.1	%	19,476		3.5	%
Other (4)	9,007		2.6	%	9,553		3.4	%	8,623		3.3	%	8,339		2.6	%	4,605		1.5	%	18,560		3.0	%	11,004		2.0	%
Total	$	340,318	100.0	%	$	279,172	100.0	%	$	259,495	100.0	%	$	323,573	100.0	%	$	314,702	100.0	%	$	619,490	100.0	%	$	559,553	100.0	%
Pro rata	$	203,632	59.8	%	$	163,996	58.7	%	$	153,536	59.2	%	$	188,874	58.4	%	$	181,988	57.8	%	$	367,628	59.3	%	$	315,080	56.3	%
Excess of loss	136,686		40.2	%	115,176		41.3	%	105,959		40.8	%	134,699		41.6	%	132,714		42.2	%	251,862		40.7	%	244,473		43.7	%
Total	$	340,318	100.0	%	$	279,172	100.0	%	$	259,495	100.0	%	$	323,573	100.0	%	$	314,702	100.0	%	$	619,490	100.0	%	$	559,553	100.0	%

(1)    Includes proportional motor, surety, accident and health, workers’ compensation catastrophe, agriculture, trade credit and other.        (3)  Includes facultative business.    

(2)      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,
	2018			2018			2017			2017			2017			2018			2017
Gross premiums written	$	330,990		$	321,178		$	335,338		$	347,951		$	336,226		$	652,168		$	684,849
Premiums ceded	(50,867		)	(46,137		)	(62,657		)	(57,900		)	(62,314		)	(97,004		)	(136,239		)
Net premiums written	280,123			275,041			272,681			290,051			273,912			555,164			548,610
Change in unearned premiums	10,355			5,201			7,600			(15,533		)	(16,068		)	15,556			(46,243		)
Net premiums earned	290,478			280,242			280,281			274,518			257,844			570,720			502,367
Other underwriting income (1)	3,315			3,416			3,738			3,599			4,277			6,731			8,400
Losses and loss adjustment expenses	(21,591		)	(43,466		)	(49,762		)	(35,156		)	(20,694		)	(65,057		)	(49,759		)
Acquisition expenses	(27,737		)	(26,567		)	(24,363		)	(21,803		)	(25,666		)	(54,304		)	(54,432		)
Other operating expenses	(38,729		)	(38,771		)	(37,546		)	(34,770		)	(32,150		)	(77,500		)	(74,020		)
Underwriting income	$	205,736		$	174,854		$	172,348		$	186,388		$	183,611		$	380,590		$	332,556
Underwriting Ratios
Loss ratio	7.4		%	15.5		%	17.8		%	12.8		%	8.0		%	11.4		%	9.9		%
Acquisition expense ratio	9.5		%	9.5		%	8.7		%	7.9		%	10.0		%	9.5		%	10.8		%
Other operating expense ratio	13.3		%	13.8		%	13.4		%	12.7		%	12.5		%	13.6		%	14.7		%
Combined ratio	30.2		%	38.8		%	39.9		%	33.4		%	30.5		%	34.5		%	35.4		%
Net (favorable) adverse development in prior year loss
reserves, net of related adjustments	(8.0		)%	(4.6		)%	(7.2		)%	(7.8		)%	(11.5		)%	(6.4		)%	(10.6		)%
Combined ratio excluding prior year development (2)	38.2		%	43.4		%	47.1		%	41.2		%	42.0		%	40.9		%	46.0		%
Net premiums written to gross premiums written	84.6		%	85.6		%	81.3		%	83.4		%	81.5		%	85.1		%	80.1		%
Net premiums written by client location
United States	$	254,966		$	246,548		$	248,817		$	262,028		$	253,456		$	501,514		$	494,592
Other	25,157			28,493			23,864			28,023			20,456			53,650			54,018
Total	$	280,123		$	275,041		$	272,681		$	290,051		$	273,912		$	555,164		$	548,610
United States %	91.0		%	89.6		%	91.2		%	90.3		%	92.5		%	90.3		%	90.2		%
Other %	9.0		%	10.4		%	8.8		%	9.7		%	7.5		%	9.7		%	9.8		%
Net premiums written by underwriting location
United States	$	229,715		$	221,177		$	223,887		$	235,447		$	227,266		$	450,892		$	443,995
Other	50,408			53,864			48,794			54,604			46,646			104,272			104,615
Total	$	280,123		$	275,041		$	272,681		$	290,051		$	273,912		$	555,164		$	548,610
United States %	82.0		%	80.4		%	82.1		%	81.2		%	83.0		%	81.2		%	80.9		%
Other %	18.0		%	19.6		%	17.9		%	18.8		%	17.0		%	18.8		%	19.1		%

(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, 2018					March 31, 2018					December 31, 2017					September 30, 2017					June 30, 2017
Insurance In Force (IIF) (1)
U.S. primary mortgage insurance	$	262,889		73.1	%	$	255,092		72.9	%	$	253,914		72.2	%	$	250,375		72.3	%	$	244,235		73.4	%
Mortgage reinsurance	26,302			7.3	%	27,531			7.9	%	28,017			8.0	%	26,869			7.8	%	26,120			7.8	%
Other (2)	70,677			19.6	%	67,252			19.2	%	69,905			19.9	%	68,925			19.9	%	62,503			18.8	%
Total	$	359,868		100.0	%	$	349,875		100.0	%	$	351,836		100.0	%	$	346,169		100.0	%	$	332,858		100.0	%
Risk In Force (RIF) (3)
U.S. primary mortgage insurance	$	67,271		92.4	%	$	65,235		92.2	%	$	64,904		92.3	%	$	64,005		92.5	%	$	62,362		92.6	%
Mortgage reinsurance	2,282			3.1	%	2,383			3.4	%	2,473			3.5	%	2,433			3.5	%	2,453			3.6	%
Other (2)	3,237			4.4	%	3,117			4.4	%	2,921			4.2	%	2,742			4.0	%	2,517			3.7	%
Total	$	72,790		100.0	%	$	70,735		100.0	%	$	70,298		100.0	%	$	69,180		100.0	%	$	67,332		100.0	%
Supplemental disclosures for U.S. primary mortgage insurance:
Total RIF by credit quality (FICO score):
>=740	$	39,038		58.0	%	$	37,974		58.2	%	$	37,794		58.2	%	$	37,297		58.3	%	$	36,378		58.3	%
680-739	22,325			33.2	%	21,438			32.9	%	21,213			32.7	%	20,822			32.5	%	20,122			32.3	%
620-679	5,235			7.8	%	5,117			7.8	%	5,159			7.9	%	5,178			8.1	%	5,118			8.2	%
<620	673			1.0	%	706			1.1	%	738			1.1	%	708			1.1	%	744			1.2	%
Total	$	67,271		100.0	%	$	65,235		100.0	%	$	64,904		100.0	%	$	64,005		100.0	%	$	62,362		100.0	%
Weighted average FICO score	743					743					743					743					743
Total RIF by Loan-To-Value (LTV):
95.01% and above	$	6,915		10.3	%	$	6,441		9.9	%	$	6,337		9.8	%	$	6,175		9.6	%	$	5,983		9.6	%
90.01% to 95.00%	37,488			55.7	%	36,387			55.8	%	36,174			55.7	%	35,703			55.8	%	34,718			55.7	%
85.01% to 90.00%	19,904			29.6	%	19,490			29.9	%	19,482			30.0	%	19,247			30.1	%	18,810			30.2	%
85.00% and below	2,964			4.4	%	2,917			4.5	%	2,911			4.5	%	2,880			4.5	%	2,851			4.6	%
Total	$	67,271		100.0	%	$	65,235		100.0	%	$	64,904		100.0	%	$	64,005		100.0	%	$	62,362		100.0	%
Weighted average LTV	92.9		%			92.9		%			92.9		%			92.9		%			92.8		%
Total RIF by State:
Texas	$	5,260		7.8	%	$	5,164		7.9	%	$	5,151		7.9	%	$	5,120		8.0	%	$	5,075		8.1	%
California	4,066			6.0	%	3,859			5.9	%	3,803			5.9	%	3,671			5.7	%	3,524			5.7	%
Florida	3,186			4.7	%	2,977			4.6	%	2,881			4.4	%	2,764			4.3	%	2,622			4.2	%
Virginia	2,844			4.2	%	2,786			4.3	%	2,773			4.3	%	2,743			4.3	%	2,691			4.3	%
North Carolina	2,456			3.7	%	2,420			3.7	%	2,410			3.7	%	2,378			3.7	%	2,346			3.8	%
Georgia	2,453			3.6	%	2,358			3.6	%	2,331			3.6	%	2,293			3.6	%	2,239			3.6	%
Illinois	2,351			3.5	%	2,252			3.5	%	2,229			3.4	%	2,200			3.4	%	2,157			3.5	%
Maryland	2,298			3.4	%	2,244			3.4	%	2,234			3.4	%	2,209			3.5	%	2,160			3.5	%
Washington	2,297			3.4	%	2,261			3.5	%	2,294			3.5	%	2,312			3.6	%	2,311			3.7	%
Minnesota	2,268			3.4	%	2,172			3.3	%	2,165			3.3	%	2,138			3.3	%	2,072			3.3	%
Others	37,792			56.2	%	36,742			56.3	%	36,633			56.4	%	36,177			56.5	%	35,165			56.4	%
Total	$	67,271		100.0	%	$	65,235		100.0	%	$	64,904		100.0	%	$	64,005		100.0	%	$	62,362		100.0	%
Weighted average coverage (end of period RIF divided by IIF)	25.6		%			25.6		%			25.6		%			25.6		%			25.5		%
U.S. mortgage insurance total RIF, net of reinsurance (4)	$	52,167				$	49,921				$	49,100				$	47,980				$	45,774
Analysts’ persistency (5)	81.7		%			81.7		%			81.8		%			80.2		%			78.1		%
Risk-to-capital ratio -- Arch MI U.S. (6)	11.6:1					10.5:1					10.8:1					11.7:1					12.0:1
PMIER sufficiency ratio -- Arch MI U.S. (7)	134		%			133		%			129		%			122		%			122		%

(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, 2018).

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, 2018).

19

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Mortgage Segment

(U.S. Dollars in millions, except policy/loan/claim count)	Three Months Ended
	June 30, 2018					March 31, 2018					December 31, 2017					September 30, 2017					June 30, 2017
Supplemental disclosures for U.S. primary mortgage insurance:
Total new insurance written (NIW) (1)	$	19,944				$	11,373				$	14,391				$	17,683				$	17,303
Total NIW by credit quality (FICO score):
>=740	$	11,308		56.7	%	$	6,612		58.1	%	$	8,278		57.5	%	$	10,063		56.9	%	$	9,814		56.7	%
680-739	7,182			36.0	%	4,042			35.5	%	5,148			35.8	%	6,357			35.9	%	6,274			36.3	%
620-679	1,454			7.3	%	719			6.3	%	965			6.7	%	1,263			7.1	%	1,215			7.0	%
Total	$	19,944		100.0	%	$	11,373		100.0	%	$	14,391		100.0	%	$	17,683		100.0	%	$	17,303		100.0	%
Total NIW by LTV:
95.01% and above	$	2,835		14.2	%	$	1,262		11.1	%	$	1,525		10.6	%	$	1,757		9.9	%	$	1,700		9.8	%
90.01% to 95.00%	9,205			46.2	%	5,136			45.2	%	6,488			45.1	%	8,406			47.5	%	8,372			48.4	%
85.01% to 90.00%	5,910			29.6	%	3,643			32.0	%	4,633			32.2	%	5,668			32.1	%	5,462			31.6	%
85.01% and below	1,994			10.0	%	1,332			11.7	%	1,745			12.1	%	1,852			10.5	%	1,769			10.2	%
Total	$	19,944		100.0	%	$	11,373		100.0	%	$	14,391		100.0	%	$	17,683		100.0	%	$	17,303		100.0	%
Total NIW monthly vs. single:
Monthly	$	18,814		94.3	%	$	10,390		91.4	%	$	12,763		88.7	%	$	15,392		87.0	%	$	14,832		85.7	%
Single	1,130			5.7	%	983			8.6	%	1,628			11.3	%	2,291			13.0	%	2,471			14.3	%
Total	$	19,944		100.0	%	$	11,373		100.0	%	$	14,391		100.0	%	$	17,683		100.0	%	$	17,303		100.0	%
Total NIW purchase vs. refinance:
Purchase	$	18,871		94.6	%	$	10,288		90.5	%	$	13,007		90.4	%	$	16,460		93.1	%	$	16,063		92.8	%
Refinance	1,073			5.4	%	1,085			9.5	%	1,384			9.6	%	1,223			6.9	%	1,240			7.2	%
Total	$	19,944		100.0	%	$	11,373		100.0	%	$	14,391		100.0	%	$	17,683		100.0	%	$	17,303		100.0	%
Ending number of policies in force (PIF) (3)	1,239,565					1,214,539					1,213,382					1,202,619					1,183,659
Rollforward of insured loans in default:
Beginning delinquent number of loans	24,062					27,068					23,770					23,903					26,234
Plus: new notices (4)	8,152					9,640					14,097					9,028					8,858
Less: cures	(10,273		)			(11,592		)			(9,737		)			(7,891		)			(9,078		)
Less: paid claims	(904		)			(1,054		)			(1,062		)			(1,270		)			(2,111		)
Ending delinquent number of loans (3) (4)	21,037					24,062					27,068					23,770					23,903
Ending percentage of loans in default (3) (4)	1.70		%			1.98		%			2.23		%			1.98		%			2.02		%
Losses:
Number of claims paid	904					1,054					1,062					1,270					2,111
Total paid claims (in thousands)	$	35,889				$	47,645				$	49,769				$	59,832				$	85,539
Average per claim (in thousands)	$	39.7				$	45.2				$	46.9				$	47.1				$	40.5
Severity (2)	97.9		%			105.2		%			103.2		%			103.5		%			104.4		%
Average reserve per default (in thousands)	$	19.3				$	18.3				$	16.5				$	19.3				$	20.4

(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.

(4) There were no incremental new notices in the 2018 second quarter and 1,300 ending delinquent loans at June 30, 2018 from areas impacted by the 2017 third quarter hurricanes.

20

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Mortgage Segment

Supplemental disclosures for U.S. primary mortgage insurance:

(U.S. Dollars in millions)	June 30, 2018												December 31, 2017
	Loss Reserves, Net (1)		Primary IIF (2)				Primary RIF (3)				Delinquency Rate		Loss Reserves, Net (1)		Primary IIF (2)				Primary RIF (3)				Delinquency Rate
	% of Total		Total		% of Total		Total		% of Total				% of Total		Total		% of Total		Total		% of Total
Policy year:
2008 and prior	76.7	%	$	23,538	9.0	%	5,335		7.9	%	8.76	%	79.8	%	$	26,140	10.3	%	6,003		9.2	%	10.24	%
2009	0.6	%	889		0.3	%	207		0.3	%	2.73	%	0.7	%	1,072		0.4	%	253		0.4	%	2.94	%
2010	0.6	%	806		0.3	%	220		0.3	%	2.22	%	0.6	%	1,089		0.4	%	295		0.5	%	2.31	%
2011	0.9	%	3,201		1.2	%	879		1.3	%	1.29	%	1.0	%	3,828		1.5	%	1,046		1.6	%	1.37	%
2012	1.7	%	11,398		4.3	%	3,135		4.7	%	0.71	%	1.7	%	13,247		5.2	%	3,629		5.6	%	0.75	%
2013	3.7	%	19,175		7.3	%	5,300		7.9	%	0.83	%	3.7	%	21,840		8.6	%	5,996		9.2	%	0.95	%
2014	2.7	%	20,352		7.7	%	5,473		8.1	%	0.92	%	2.7	%	22,884		9.0	%	6,112		9.4	%	1.10	%
2015	3.4	%	37,664		14.3	%	9,792		14.6	%	0.60	%	3.2	%	41,991		16.5	%	10,828		16.7	%	0.77	%
2016	6.1	%	57,643		21.9	%	14,645		21.8	%	0.65	%	4.8	%	62,020		24.4	%	15,643		24.1	%	0.80	%
2017	3.5	%	57,325		21.8	%	14,502		21.6	%	0.34	%	1.7	%	59,803		23.6	%	15,099		23.3	%	0.35	%
2018	0.1	%	30,898		11.8	%	7,783		11.6	%	0.03	%
Total	100.0	%	$	262,889	100.0	%	$	67,271	100.0	%	1.70	%	100.0	%	$	253,914	100.0	%	$	64,904	100.0	%	2.23	%

(1) Total reserves for losses and loss adjustment expenses, net of recoverables, was $451.2 million at June 30, 2018, compared to $477.1 million at December 31, 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 transactions.

21

Arch Capital Group Ltd. and Subsidiaries

Segment Information - Consolidated Excluding the 'Other' Segment (Sub-Total (Core))

(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,
	2018			2018			2017			2017			2017			2018			2017
Gross premiums written	$	1,591,202		$	1,721,605		$	1,391,247		$	1,557,179		$	1,533,142		$	3,312,807		$	3,139,828
Premiums ceded	(432,892		)	(488,613		)	(395,533		)	(385,503		)	(424,850		)	(921,505		)	(898,962		)
Net premiums written	1,158,310			1,232,992			995,714			1,171,676			1,108,292			2,391,302			2,240,866
Change in unearned premiums	18,935			(134,841		)	98,695			(38,420		)	(18,172		)	(115,906		)	(155,726		)
Net premiums earned	1,177,245			1,098,151			1,094,409			1,133,256			1,090,120			2,275,396			2,085,140
Other underwriting income	3,186			4,648			13,931			5,327			3,998			7,834			7,815
Losses and loss adjustment expenses	(609,012		)	(538,871		)	(562,085		)	(922,560		)	(579,239		)	(1,147,883		)	(1,046,399		)
Acquisition expenses	(168,549		)	(160,055		)	(178,236		)	(161,781		)	(155,689		)	(328,604		)	(305,470		)
Other operating expenses	(167,087		)	(166,316		)	(162,007		)	(161,859		)	(161,128		)	(333,403		)	(328,657		)
Underwriting income (loss)	$	235,783		$	237,557		$	206,012		$	(107,617	)	$	198,062		$	473,340		$	412,429
Underwriting Ratios
Loss ratio	51.7		%	49.1		%	51.4		%	81.4		%	53.1		%	50.4		%	50.2		%
Acquisition expense ratio	14.3		%	14.6		%	16.3		%	14.3		%	14.3		%	14.4		%	14.6		%
Other operating expense ratio	14.2		%	15.1		%	14.8		%	14.3		%	14.8		%	14.7		%	15.8		%
Combined ratio	80.2		%	78.8		%	82.5		%	110.0		%	82.2		%	79.5		%	80.6		%
Catastrophic activity and prior year development:
Current accident year catastrophic events, net of
reinsurance and reinstatement premiums	1.3		%	0.2		%	0.1		%	30.7		%	2.3		%	0.7		%	1.8		%
Net (favorable) adverse development in prior year loss
reserves, net of related adjustments	(5.1		)%	(4.6		)%	(4.6		)%	(5.1		)%	(6.4		)%	(4.9		)%	(7.4		)%
Combined ratio excluding catastrophic activity and prior year development (1)	84.0		%	83.2		%	87.0		%	84.4		%	86.3		%	83.7		%	86.2		%
Net premiums written to gross premiums written	72.8		%	71.6		%	71.6		%	75.2		%	72.3		%	72.2		%	71.4		%

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

22

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,
	2018			2018			2017			2017			2017			2018			2017
Components of losses and loss adjustment expenses incurred (1)
Paid losses and loss adjustment expenses	$	567,915		$	496,445		$	606,662		$	577,726		$	521,463		$	1,064,360		$	986,405
Change in unpaid losses and loss adjustment expenses	41,097			42,426			(44,577		)	344,834			57,776			83,523			59,994
Total losses and loss adjustment expenses	$	609,012		$	538,871		$	562,085		$	922,560		$	579,239		$	1,147,883		$	1,046,399
Estimated net (favorable) adverse development in prior year loss reserves, net of related adjustments (1)
Net impact on underwriting results:
Insurance	$	(5,104	)	$	(1,506	)	$	(334	)	$	(1,631	)	$	(784	)	$	(6,610	)	$	(2,058	)
Reinsurance	(31,882		)	(36,158		)	(30,452		)	(34,731		)	(38,720		)	(68,040		)	(98,428		)
Mortgage	(23,314		)	(12,977		)	(20,102		)	(21,518		)	(29,779		)	(36,291		)	(53,340		)
Total	$	(60,300	)	$	(50,641	)	$	(50,888	)	$	(57,880	)	$	(69,283	)	$	(110,941	)	$	(153,826	)
Impact on losses and loss adjustment expenses:
Insurance	$	(6,058	)	$	(2,110	)	$	(1,474	)	$	(3,041	)	$	(1,977	)	$	(8,168	)	$	(4,117	)
Reinsurance	(33,022		)	(36,541		)	(32,136		)	(36,521		)	(39,535		)	(69,563		)	(96,783		)
Mortgage	(23,333		)	(12,977		)	(20,102		)	(21,514		)	(29,798		)	(36,310		)	(53,359		)
Total	$	(62,413	)	$	(51,628	)	$	(53,712	)	$	(61,076	)	$	(71,310	)	$	(114,041	)	$	(154,259	)
Impact on acquisition expenses:
Insurance	$	954		$	604		$	1,140		$	1,410		$	1,193		$	1,558		$	2,059
Reinsurance	1,140			383			1,684			1,790			815			1,523			(1,645		)
Mortgage	19			—			—			(4		)	19			19			19
Total	$	2,113		$	987		$	2,824		$	3,196		$	2,027		$	3,100		$	433
Impact on combined ratio:
Insurance	(0.9		)%	(0.3		)%	(0.1		)%	(0.3		)%	(0.2		)%	(0.6		)%	(0.2		)%
Reinsurance	(9.4		)%	(13.0		)%	(11.7		)%	(10.7		)%	(12.3		)%	(11.0		)%	(17.6		)%
Mortgage	(8.0		)%	(4.6		)%	(7.2		)%	(7.8		)%	(11.5		)%	(6.4		)%	(10.6		)%
Total	(5.1		)%	(4.6		)%	(4.6		)%	(5.1		)%	(6.4		)%	(4.9		)%	(7.4		)%
Impact on loss ratio:
Insurance	(1.1		)%	(0.4		)%	(0.3		)%	(0.6		)%	(0.4		)%	(0.8		)%	(0.4		)%
Reinsurance	(9.7		)%	(13.1		)%	(12.4		)%	(11.3		)%	(12.6		)%	(11.2		)%	(17.3		)%
Mortgage	(8.0		)%	(4.6		)%	(7.2		)%	(7.8		)%	(11.5		)%	(6.4		)%	(10.6		)%
Total	(5.3		)%	(4.7		)%	(4.9		)%	(5.4		)%	(6.5		)%	(5.0		)%	(7.4		)%
Impact on acquisition expense ratio:
Insurance	0.2		%	0.1		%	0.2		%	0.3		%	0.2		%	0.2		%	0.2		%
Reinsurance	0.3		%	0.1		%	0.7		%	0.6		%	0.3		%	0.2		%	(0.3		)%
Mortgage	0.0		%	0.0		%	0.0		%	0.0		%	0.0		%	0.0		%	0.0		%
Total	0.2		%	0.1		%	0.3		%	0.3		%	0.1		%	0.1		%	0.0		%
Estimated net losses incurred from current accident year catastrophic events (2)
Insurance	$	7,558		$	1,029		$	(7,025	)	$	214,462		$	8,475		$	8,587		$	10,969
Reinsurance	7,388			975			7,790			133,355			16,367			8,363			26,219
Total	$	14,946		$	2,004		$	765		$	347,817		$	24,842		$	16,950		$	37,188
Impact on combined ratio:
Insurance	1.4		%	0.2		%	(1.3		)%	40.1		%	1.6		%	0.8		%	1.1		%
Reinsurance	2.2		%	0.3		%	3.0		%	41.2		%	5.2		%	1.3		%	4.7		%
Total	1.3		%	0.2		%	0.1		%	30.7		%	2.3		%	0.7		%	1.8		%

(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.

23

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,
	2018					2018					2017					2017					2017
Investable assets (1) (2):
Fixed maturities available for sale, at fair value	$	13,849,812		72.2	%	$	14,145,765		71.5	%	$	13,876,003		70.4	%	$	13,792,903		70.0	%	$	13,671,011		71.3	%
Fixed maturities—fair value option (3)	374,708			2.0	%	457,317			2.3	%	465,822			2.4	%	413,611			2.1	%	408,413			2.1	%
Fixed maturities pledged under securities lending agreements, at fair value	218,471			1.1	%	350,365			1.8	%	456,388			2.3	%	524,748			2.7	%	603,268			3.1	%
Total fixed maturities	14,442,991			75.3	%	14,953,447			75.6	%	14,798,213			75.1	%	14,731,262			74.8	%	14,682,692			76.6	%
Equity securities, at fair value	471,473			2.5	%	543,650			2.7	%	495,804			2.5	%	477,143			2.4	%	461,017			2.4	%
Equity securities—fair value option (3)	62,080			0.3	%	69,267			0.3	%	71,707			0.4	%	65,420			0.3	%	61,906			0.3	%
Equity securities pledged under securities lending agreements, at fair value	11,593			0.1	%	7,787			0.0	%	8,529			0.0	%	3,464			0.0	%	6,853			0.0	%
Total equity securities	545,146			2.8	%	620,704			3.1	%	576,040			2.9	%	546,027			2.8	%	529,776			2.8	%
Other investments available for sale, at fair value	—			0.0	%	—			0.0	%	264,989			1.3	%	260,339			1.3	%	248,661			1.3	%
Other investments—fair value option (3)	1,266,327			6.6	%	1,239,063			6.3	%	1,211,971			6.1	%	1,236,192			6.3	%	1,175,234			6.1	%
Total other investments	1,266,327			6.6	%	1,239,063			6.3	%	1,476,960			7.5	%	1,496,531			7.6	%	1,423,895			7.4	%
Investments accounted for using the equity method (4)	1,428,582			7.5	%	1,394,548			7.0	%	1,041,322			5.3	%	962,574			4.9	%	948,856			4.9	%
Short-term investments available for sale, at fair value	1,096,798			5.7	%	967,389			4.9	%	1,469,042			7.5	%	1,646,036			8.4	%	914,356			4.8	%
Short-term investments—fair value option (3)	23,179			0.1	%	22,098			0.1	%	40,671			0.2	%	77,045			0.4	%	52,419			0.3	%
Total short-term investments	1,119,977			5.8	%	989,487			5.0	%	1,509,713			7.7	%	1,723,081			8.7	%	966,775			5.0	%
Cash	480,984			2.5	%	626,838			3.2	%	551,696			2.8	%	805,210			4.1	%	676,391			3.5	%
Securities transactions entered into but not settled at the balance sheet date	(111,997		)	(0.6	)%	(33,289		)	(0.2	)%	(237,523		)	(1.2	)%	(568,498		)	(2.9	)%	(54,676		)	(0.3	)%
Total investable assets held by the Company	$	19,172,010		100.0	%	$	19,790,798		100.0	%	$	19,716,421		100.0	%	$	19,696,187		100.0	%	$	19,173,709		100.0	%
Average effective duration (in years)	2.89					2.60					2.83					3.14					3.41
Average S&P/Moody’s credit ratings (5)	AA/Aa2					AA-/Aa3					AA-/Aa2					AA/Aa2					AA/Aa2
Embedded book yield (before investment expenses)	2.64		%			2.50		%			2.32		%			2.20		%			2.27		%

(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	$	45,644		$	54,053		$	54,503		$	57,151		$	63,929
Investments accounted for using the fair value option	2,385,317			2,331,394			2,426,066			2,457,366			2,129,436
Fixed maturities available for sale, at fair value	279,177			203,176			—			—			—
Equity securities, at fair value	63,009			—			—			—			—
Securities sold but not yet purchased	(24,529		)	(63,110		)	(34,375		)	(72,682		)	(69,273		)
Securities transactions entered into but not settled at the balance sheet date	(100,777		)	(32,218		)	(6,127		)	(137,014		)	(191,534		)
Total investable assets included in ‘other’ segment	$	2,647,841		$	2,493,295		$	2,440,067		$	2,304,821		$	1,932,558

(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”).

24

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,
	2018			2018			2017			2017			2017			2018			2017
Composition of net investment income (1):
Fixed maturities	$	98,968		$	92,438		$	85,855		$	84,602		$	83,656		$	191,406		$	166,437
Equity securities (dividends)	4,232			2,750			2,551			3,210			3,976			6,982			6,942
Short-term investments	4,225			3,949			3,719			2,514			1,669			8,174			3,110
Other (2)	19,242			19,229			22,019			18,238			18,298			38,471			39,532
Gross investment income	126,667			118,366			114,144			108,564			107,599			245,033			216,021
Investment expenses	(18,906		)	(18,123		)	(14,531		)	(14,437		)	(15,079		)	(37,029		)	(27,689		)
Net investment income	$	107,761		$	100,243		$	99,613		$	94,127		$	92,520		$	208,004		$	188,332
Per share	$	0.26		$	0.24		$	0.24		$	0.23		$	0.22		$	0.50		$	0.45
Investment income yield, at amortized cost (1) (3):
Pre-tax	2.32		%	2.13		%	2.08		%	2.00		%	2.04		%	2.23		%	2.10		%
After-tax	2.12		%	1.94		%	1.89		%	1.74		%	1.81		%	2.03		%	1.86		%
Total return (1) (4):
Including effects of foreign exchange	(0.19		)%	(0.32		)%	0.79		%	1.60		%	1.63		%	(0.51		)%	3.37		%
Excluding effects of foreign exchange	0.33		%	(0.40		)%	0.71		%	1.26		%	1.29		%	(0.08		)%	2.94		%

(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) Amounts include dividends and other distributions on investment funds, term loan investments funds held balances, cash balances and other.

(3) 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.

(4) 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.

25

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, 2018
Corporates	$	5,751,032	$	7,172	$	(103,100	)	$	(95,928	)	$	5,846,960	98.4	%	39.8	%
U.S. government and government agencies	2,690,035		6,188		(19,249		)	(13,061		)	2,703,096		99.5	%	18.6	%
Municipal bonds	1,409,180		7,371		(22,045		)	(14,674		)	1,423,854		99.0	%	9.8	%
Non-U.S. government securities	1,682,039		16,978		(26,390		)	(9,412		)	1,691,451		99.4	%	11.6	%
Asset-backed securities	1,821,748		3,309		(16,551		)	(13,242		)	1,834,990		99.3	%	12.6	%
Commercial mortgage-backed securities	590,198		776		(13,222		)	(12,446		)	602,644		97.9	%	4.1	%
Residential mortgage-backed securities	498,759		1,699		(4,742		)	(3,043		)	501,802		99.4	%	3.5	%
Total	$	14,442,991	$	43,493	$	(205,299	)	$	(161,806	)	$	14,604,797	98.9	%	100.0	%
At December 31, 2017
Corporates	$	4,787,272	$	30,943	$	(32,340	)	$	(1,397	)	$	4,788,669	100.0	%	32.4	%
U.S. government and government agencies	3,484,257		2,188		(28,769		)	(26,581		)	3,510,838		99.2	%	23.5	%
Municipal bonds	2,158,840		20,285		(12,308		)	7,977			2,150,863		100.4	%	14.6	%
Non-U.S. government securities	1,704,337		48,764		(17,321		)	31,443			1,672,894		101.9	%	11.5	%
Asset-backed securities	1,788,766		5,147		(8,614		)	(3,467		)	1,792,233		99.8	%	12.1	%
Commercial mortgage-backed securities	545,817		2,131		(4,268		)	(2,137		)	547,954		99.6	%	3.7	%
Residential mortgage-backed securities	328,924		1,640		(2,561		)	(921		)	329,845		99.7	%	2.2	%
Total	$	14,798,213	$	111,098	$	(106,181	)	$	4,917		$	14,793,296	100.0	%	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.

26

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,
	2018				2018				2017				2017				2017
Credit quality distribution of total fixed maturities (2) (3):
U.S. government and government agencies (4)	$	3,196,856	22.1	%	$	3,280,853	21.9	%	$	3,771,835	25.5	%	$	4,040,392	27.4	%	$	3,710,580	25.3	%
AAA	3,897,441		27.0	%	4,076,660		27.3	%	4,080,808		27.6	%	4,048,800		27.5	%	4,094,499		27.9	%
AA	2,139,794		14.8	%	2,211,254		14.8	%	2,440,864		16.5	%	2,406,692		16.3	%	2,572,277		17.5	%
A	3,114,115		21.6	%	3,079,753		20.6	%	2,470,936		16.7	%	2,285,336		15.5	%	2,358,636		16.1	%
BBB	1,373,644		9.5	%	1,426,818		9.5	%	1,157,136		7.8	%	1,110,089		7.5	%	1,123,667		7.7	%
BB	240,114		1.7	%	312,169		2.1	%	313,286		2.1	%	291,798		2.0	%	281,402		1.9	%
B	185,066		1.3	%	249,346		1.7	%	254,011		1.7	%	231,880		1.6	%	214,189		1.5	%
Lower than B	64,858		0.4	%	71,922		0.5	%	77,543		0.5	%	90,947		0.6	%	86,490		0.6	%
Not rated	231,103		1.6	%	244,672		1.6	%	231,794		1.6	%	225,328		1.5	%	240,952		1.6	%
Total fixed maturities, at fair value	$	14,442,991	100.0	%	$	14,953,447	100.0	%	$	14,798,213	100.0	%	$	14,731,262	100.0	%	$	14,682,692	100.0	%
Maturity profile of total fixed maturities (2):
Due in one year or less	$	387,178	2.7	%	$	615,987	4.1	%	$	585,093	4.0	%	$	564,970	3.8	%	$	619,654	4.2	%
Due after one year through five years	8,131,505		56.3	%	8,089,071		54.1	%	7,695,940		52.0	%	7,783,422		52.8	%	7,478,786		50.9	%
Due after five years through ten years	2,737,358		19.0	%	2,888,717		19.3	%	3,455,653		23.4	%	3,579,082		24.3	%	3,624,647		24.7	%
Due after 10 years	276,245		1.9	%	326,547		2.2	%	398,020		2.7	%	331,086		2.2	%	354,066		2.4	%
	11,532,286		79.8	%	11,920,322		79.7	%	12,134,706		82.0	%	12,258,560		83.2	%	12,077,153		82.3	%
Mortgage-backed securities	498,759		3.5	%	351,059		2.3	%	328,924		2.2	%	337,478		2.3	%	344,572		2.3	%
Commercial mortgage-backed securities	590,198		4.1	%	561,543		3.8	%	545,817		3.7	%	584,730		4.0	%	521,272		3.6	%
Asset-backed securities	1,821,748		12.6	%	2,120,523		14.2	%	1,788,766		12.1	%	1,550,494		10.5	%	1,739,695		11.8	%
Total fixed maturities, at fair value	$	14,442,991	100.0	%	$	14,953,447	100.0	%	$	14,798,213	100.0	%	$	14,731,262	100.0	%	$	14,682,692	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.

27

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,
	2018				2018				2017				2017				2017
Sector:
Industrials	$	2,979,178	51.8	%	$	2,958,018	51.8	%	$	2,491,090	52.0	%	$	2,336,468	50.9	%	$	2,471,700	53.8	%
Financials	2,373,628		41.3	%	2,299,239		40.3	%	1,831,017		38.2	%	1,651,416		36.0	%	1,519,340		33.0	%
Utilities	238,343		4.1	%	227,110		4.0	%	234,172		4.9	%	260,491		5.7	%	284,356		6.2	%
Covered bonds	44,267		0.8	%	87,513		1.5	%	98,752		2.1	%	116,864		2.5	%	127,022		2.8	%
All other (2)	115,616		2.0	%	133,277		2.3	%	132,241		2.8	%	223,519		4.9	%	195,870		4.3	%
Total fixed maturities, at fair value	$	5,751,032	100.0	%	$	5,705,157	100.0	%	$	4,787,272	100.0	%	$	4,588,758	100.0	%	$	4,598,288	100.0	%
Credit quality distribution (3):
AAA	$	216,636	3.8	%	$	283,752	5.0	%	$	329,573	6.9	%	$	460,374	10.0	%	$	464,732	10.1	%
AA	1,170,565		20.4	%	1,125,628		19.7	%	1,107,946		23.1	%	988,435		21.5	%	947,849		20.6	%
A	2,609,642		45.4	%	2,508,184		44.0	%	1,904,528		39.8	%	1,745,690		38.0	%	1,791,532		39.0	%
BBB	1,203,104		20.9	%	1,168,268		20.5	%	877,962		18.3	%	855,066		18.6	%	862,117		18.7	%
BB	203,978		3.5	%	239,291		4.2	%	237,227		5.0	%	217,495		4.7	%	208,913		4.5	%
B	156,646		2.7	%	170,393		3.0	%	165,846		3.5	%	155,985		3.4	%	149,071		3.2	%
Lower than B	22,152		0.4	%	26,948		0.5	%	30,376		0.6	%	27,571		0.6	%	28,872		0.6	%
Not rated	168,309		2.9	%	182,693		3.2	%	133,814		2.8	%	138,142		3.0	%	145,202		3.2	%
Total fixed maturities, at fair value	$	5,751,032	100.0	%	$	5,705,157	100.0	%	$	4,787,272	100.0	%	$	4,588,758	100.0	%	$	4,598,288	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, 2018 (1):

(U.S. Dollars in thousands)	Fair Value		% of Asset Class		% of Investable Assets		Credit Quality (2)
Issuer:
Citigroup Inc.	$	190,925	3.3	%	1.0	%	A/A2
JPMorgan Chase & Co.	180,960		3.1	%	0.9	%	A-/A2
Bank of America Corporation	178,797		3.1	%	0.9	%	A-/A3
Apple Inc.	170,852		3.0	%	0.9	%	AA+/Aa1
Wells Fargo & Company	136,738		2.4	%	0.7	%	A/A1
Daimler AG	100,541		1.7	%	0.5	%	A/A2
Philip Morris International Inc.	99,728		1.7	%	0.5	%	A/A2
The Bank of New York Mellon Corporation	96,728		1.7	%	0.5	%	A/A1
Toyota Motor Corporation	96,200		1.7	%	0.5	%	AA-/Aa3
U.S. Bancorp	90,850		1.6	%	0.5	%	AA-/A1
Total	$	1,342,319	23.3	%	7.0	%

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

28

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, 2018 (1):

(U.S. Dollars in thousands)	Agencies		AAA		AA		A		BBB		Non-Investment Grade		Total
Residential mortgage-backed securities	$	460,617	$	11,487	$	2,233	$	204	$	438	$	23,780	$	498,759
Commercial mortgage-backed securities	46,205		479,723		6,104		12,968		24,740		20,458		590,198
Asset-backed securities	—		1,521,417		3,500		152,709		70,224		73,898		1,821,748
Total	$	506,822	$	2,012,627	$	11,837	$	165,881	$	95,402	$	118,136	$	2,910,705

(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, 2018 (1):

(U.S. Dollars in thousands)			Financial		Other		Bank		Equities
	Sovereign (3)		Corporates		Corporates		Loans		and Other		Total
Country (2):
Germany	$	256,053	$	2,214	$	1,190	$	36,135	$	9,719	$	305,311
Netherlands	110,568		43,618		73,971		10,769		7,591		246,517
France	20,275		15,173		30,409		13,229		21,683		100,769
Luxembourg	—		10,038		1,300		8,952		—		20,290
Ireland	—		6,701		1,110		3,179		2,123		13,113
Spain	—		592		1,823		—		9,157		11,572
Greece	1,968		—		—		—		3,091		5,059
Austria	3,976		—		—		—		—		3,976
Italy	—		—		685		1,763		546		2,994
Belgium	—		—		181		1,166		—		1,347
Portugal	—		—		—		—		1,236		1,236
Total	$	392,840	$	78,336	$	110,669	$	75,193	$	55,146	$	712,184

(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, 2018.

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

29

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, UGC transaction costs and other and loss on redemption of preferred shares, 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, UGC transaction costs and other and loss on redemption of preferred shares 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. 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. The loss on redemption of preferred shares related to the redemption of the Company's Series C preferred shares in January 2018 and had no impact on shareholders' equity or cash flows. 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, UGC transaction costs and other and loss on redemption of preferred shares 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 (if applicable for the segment) and prior year development. 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.

30

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 (loss) available to Arch common shareholders to after-tax operating income (loss) 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,
	2018			2018			2017			2017			2017			2018			2017
Net income (loss) available to Arch common shareholders	$	233,243		$	137,276		$	203,535		$	(52,760	)	$	173,818		$	370,519		$	415,727
Net realized (gains) losses	61,426			111,764			(36,906		)	(64,344		)	(18,452		)	173,190			(47,586		)
Net impairment losses recognized in earnings	470			162			1,723			1,878			1,730			632			3,537
Equity in net (income) loss of investment funds accounted for using the equity method	(8,472		)	(28,069		)	(30,402		)	(31,090		)	(32,706		)	(36,541		)	(80,794		)
Net foreign exchange (gains) losses	(47,038		)	15,556			27,994			27,811			38,012			(31,482		)	57,808
UGC transaction costs and other	6,908			830			901			2,990			2,675			7,738			18,259
Loss on redemption of preferred shares	—			2,710			—			6,735			—			2,710			—
Income tax expense (benefit) (1)	(3,941		)	(5,086		)	20,559			1,647			3,842			(9,027		)	(67		)
After-tax operating income (loss) available to Arch common shareholders	$	242,596		$	235,143		$	187,404		$	(107,133	)	$	168,919		$	477,739		$	366,884
Diluted per common share results (2):
Net income (loss) available to Arch common shareholders	$	0.56		$	0.33		$	0.49		$	(0.13	)	$	0.42		$	0.89		$	1.00
Net realized (gains) losses	0.15			0.26			(0.09		)	(0.15		)	(0.05		)	0.42			(0.12		)
Net impairment losses recognized in earnings	0.00			0.00			0.00			0.00			0.00			0.00			0.01
Equity in net (income) loss of investment funds accounted for using the equity method	(0.02		)	(0.07		)	(0.07		)	(0.08		)	(0.08		)	(0.09		)	(0.19		)
Net foreign exchange (gains) losses	(0.11		)	0.04			0.07			0.07			0.09			(0.08		)	0.14
UGC transaction costs and other	0.02			0.00			0.00			0.01			0.01			0.02			0.04
Loss on redemption of preferred shares	0.00			0.01			0.00			0.02			0.00			0.01			0.00
Income tax expense (benefit) (1)	(0.01		)	(0.01		)	0.05			0.00			0.01			(0.02		)	0.00
After-tax operating income (loss) available to Arch common shareholders	$	0.59		$	0.56		$	0.45		$	(0.26	)	$	0.40		$	1.15		$	0.88
Weighted average common shares and common share equivalents outstanding - diluted (2)	413,111,205			417,893,802			418,735,890			404,656,353			417,733,938			415,460,756			417,421,896
Beginning common shareholders’ equity	$	8,370,372		$	8,324,047		$	8,138,589		$	8,126,332		$	7,833,289		$	8,324,047		$	7,481,163
Ending common shareholders’ equity	8,383,755			8,370,372			8,324,047			8,138,589			8,126,332			8,383,755			8,126,332
Average common shareholders’ equity	$	8,377,064		$	8,347,210		$	8,231,318		$	8,132,461		$	7,979,811		$	8,353,901		$	7,803,748
Annualized return on average common equity	11.1		%	6.6		%	9.9		%	(2.6		)%	8.7		%	8.9		%	10.7		%
Annualized operating return on average common equity	11.6		%	11.3		%	9.1		%	(5.3		)%	8.5		%	11.4		%	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, UGC transaction costs and other and loss on redemption of preferred shares reflects the relative mix reported by jurisdiction and the varying tax rates in each jurisdiction.

(2) Due to the net loss recorded in the 2017 third quarter, weighted average common shares and common share equivalents outstanding for such period do not include the effect of dilutive securities since the inclusion of such securities is anti-dilutive to per share results.

31

Arch Capital Group Ltd. and Subsidiaries

Operating Income and Effective Tax Rate Calculations

The following table provides a reconciliation of income (loss) before income taxes to after-tax operating income (loss) available to Arch common shareholders and an analysis of the effective tax rate on pre-tax operating income (loss) 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,
	2018			2018			2017			2017			2017			2018			2017
Arch Operating Income Components (1):
Income (loss) before income taxes	$	266,283		$	170,928		$	273,611		$	(23,487	)	$	218,177		$	437,211		$	497,680
Net realized (gains) losses	59,545			111,859			(38,136		)	(64,104		)	(18,046		)	171,404			(46,558		)
Net impairment losses recognized in earnings	470			162			1,723			1,878			1,730			632			3,537
Equity in net (income) loss of investment funds accounted for using the equity method	(8,472		)	(28,069		)	(30,402		)	(31,090		)	(32,706		)	(36,541		)	(80,794		)
Net foreign exchange (gains) losses	(46,211		)	15,039			27,894			27,785			37,821			(31,172		)	57,666
UGC transaction costs and other	6,908			830			901			2,990			2,675			7,738			18,259
Pre-tax operating income (loss)	278,523			270,749			235,591			(86,028		)	209,651			549,272			449,790
Arch share of ‘other’ segment operating income (loss) (2)	2,062			1,831			(829		)	(2,210		)	942			3,893			2,292
Pre-tax operating income (loss) available to Arch (b)	280,585			272,580			234,762			(88,238		)	210,593			553,165			452,082
Income tax expense (a)	(27,586		)	(27,000		)	(36,253		)	(6,526		)	(30,325		)	(54,586		)	(62,631		)
After-tax operating income (loss) available to Arch	252,999			245,580			198,509			(94,764		)	180,268			498,579			389,451
Preferred dividends	(10,403		)	(10,437		)	(11,105		)	(12,369		)	(11,349		)	(20,840		)	(22,567		)
After-tax operating income (loss) available to Arch common shareholders	$	242,596		$	235,143		$	187,404		$	(107,133	)	$	168,919		$	477,739		$	366,884
Effective tax rate on pre-tax operating income (loss) available to Arch (a)/(b)	9.8		%	9.9		%	15.4		%	(7.4		)%	14.4		%	9.9		%	13.9		%

(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 (loss) 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,
	2018			2018			2017			2017			2017			2018			2017
Balances in ‘other’ segment:
Underwriting income (loss)	$	(318	)	$	(560	)	$	(23,901	)	$	(34,555	)	$	(2,643	)	$	(878	)	$	(4,938	)
Net investment income	27,907			26,481			25,802			22,332			18,604			54,388			40,666
Interest expense	(4,286		)	(4,729		)	(4,836		)	(3,246		)	(2,837		)	(9,015		)	(5,757		)
Preferred dividends	(4,585		)	(4,585		)	(4,588		)	(4,586		)	(4,586		)	(9,170		)	(9,170		)
Pre-tax operating income (loss) available to common shareholders	18,718			16,607			(7,523		)	(20,055		)	8,538			35,325			20,801
Arch ownership	11		%	11		%	11		%	11		%	11		%	11		%	11		%
Arch share of ‘Other’ segment operating income (loss) (3)	$	2,062		$	1,831		$	(829	)	$	(2,210	)	$	942		$	3,893		$	2,292

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

32

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,
	2018			2018			2017			2017			2017
Debt:
Arch Capital senior notes, due May 1, 2034 ($300,000 principal, 7.35%)	$	297,101		$	297,076		$	297,053		$	297,030		$	297,007
Arch-U.S. senior notes, due Nov. 1, 2043 ($500,000 principal, 5.144%) (2)	494,671			494,646			494,621			494,596			494,572
Arch Finance senior notes, due December 15, 2026 ($500,000 principal, 4.011%) (3)	496,229			496,135			496,043			495,955			495,868
Arch Finance senior notes, due December 15, 2046 ($450,000 principal, 5.031%) (3)	445,210			445,186			445,167			445,145			445,123
Revolving credit agreement borrowings, due October 26, 2021 (variable)	125,000			375,000			375,000			400,000			500,000
Total debt	$	1,858,211		$	2,108,043		$	2,107,884		$	2,132,726		$	2,232,570
Shareholders’ equity available to Arch:
Series C non-cumulative preferred shares (6.75%)	$	—		$	—		$	92,555		$	92,555		$	322,555
Series E non-cumulative preferred shares (5.25%)	450,000			450,000			450,000			450,000			450,000
Series F non-cumulative preferred shares (5.45%)	330,000			330,000			330,000			230,000			—
Common shareholders’ equity (a)	8,383,755			8,370,372			8,324,047			8,138,589			8,126,332
Total shareholders’ equity available to Arch	$	9,163,755		$	9,150,372		$	9,196,602		$	8,911,144		$	8,898,887
Total capital available to Arch	$	11,021,966		$	11,258,415		$	11,304,486		$	11,043,870		$	11,131,457
Common shares outstanding, net of treasury shares (b)	405,436,637			410,047,266			409,956,417			409,621,719			409,062,477
Book value per common share (4) (a)/(b)	$	20.68		$	20.41		$	20.30		$	19.87		$	19.87
Leverage ratios:
Senior notes/total capital available to Arch	15.7		%	15.4		%	15.3		%	15.7		%	15.6		%
Revolving credit agreement borrowings/total capital available to Arch	1.1		%	3.3		%	3.3		%	3.6		%	4.5		%
Debt/total capital available to Arch	16.9		%	18.7		%	18.6		%	19.3		%	20.1		%
Preferred/total capital available to Arch	7.1		%	6.9		%	7.7		%	7.0		%	6.9		%
Debt and preferred/total capital available to Arch	23.9		%	25.7		%	26.4		%	26.3		%	27.0		%

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

(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 Arch Capital.

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

The following table provides the impact of share repurchases under 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,
	2018		2018		2017		2017		2017		2018
Effect of share repurchases:
Aggregate cost of shares repurchased	$	170,276	$	3,299	$	—	$	—	$	—	$	3,856,236
Shares repurchased	6,404,430		118,215		—		—		—		382,194,177
Average price per share repurchased	$	26.59	$	27.91	$	—	$	—	$	—	$	10.09
Remaining share repurchase authorization (1)											$	272,926

(1) 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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