Arch Capital (ACGL) 8-K Results of Operations and Financial Condition

Exhibit 99.2

	Wessex House, 4th Floor
	45 Reid Street
	Hamilton HM 12  Bermuda 441-278-9250 441-278-9255 fax Contact: John C.R. Hele Executive Vice President and Chief Financial Officer

Financial Supplement

Financial Information

as of September 30, 2009 (unaudited)

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

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

Arch Capital Group Ltd. and Subsidiaries

Table of Contents

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

All financial information contained herein is unaudited, except for the consolidated balance sheet as of December 31, 2008 and 2007.

Arch Capital Group Ltd. and Subsidiaries

Cautionary Note Regarding Forward-Looking Statements

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

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

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

Arch Capital Group Ltd. and Subsidiaries

Financial Highlights

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

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2009			2008			Change		2009			2008			Change
Gross premiums written	$	937,328		$	903,533		3.7	%	$	2,874,219		$	2,843,611		1.1	%
Net premiums written	$	727,308		$	692,692		5.0	%	$	2,244,025		$	2,190,152		2.5	%
Net premiums earned	$	734,385		$	733,031		0.2	%	$	2,134,207		$	2,146,940		(0.6	)%
Underwriting income (loss)	$	73,835		$	(38,516	)	(291.7	)%	$	256,848		$	151,260		69.8	%
Net investment income	$	100,213		$	117,022		(14.4	)%	$	296,580		$	356,335		(16.8	)%
Per diluted share	$	1.60		$	1.86		(14.0	)%	$	4.74		$	5.44		(12.9	)%
Net income available to common shareholders	$	274,407		$	26,390		939.8	%	$	566,405		$	408,094		38.8	%
Per diluted share	$	4.39		$	0.42		945.2	%	$	9.05		$	6.23		45.3	%
After-tax operating income available to common shareholders (1)	$	160,332		$	64,094		150.2	%	$	492,374		$	451,452		9.1	%
Per diluted share	$	2.56		$	1.02		151.0	%	$	7.87		$	6.89		14.2	%
Comprehensive income (loss)	$	526,441		$	(250,468	)	(310.2	)%	$	1,124,631		$	(25,039	)	(4,591.5	)%
Cash flow from operations	$	316,309		$	382,189		(17.2	)%	$	834,854		$	972,997		(14.2	)%
Diluted weighted average common shares and common share equivalents outstanding	62,533,816			62,830,910			(0.5	)%	62,590,228			65,530,570			(4.5	)%
Underwriting ratios:
Loss ratio	60.6		%	74.9		%	(14.3	)%	58.3		%	63.2		%	(4.9	)%
Acquisition expense ratio	16.6		%	18.1		%	(1.5	)%	17.4		%	17.0		%	0.4	%
Other operating expense ratio	12.8		%	12.3		%	0.5	%	12.3		%	12.7		%	(0.4	)%
Combined ratio	90.0		%	105.3		%	(15.3	)%	88.0		%	92.9		%	(4.9	)%
Annualized operating return on average common equity	16.4		%	7.6		%	8.8	%	18.1		%	17.4		%	0.7	%

(1) See page 18, Comments on Regulation G.

1

Arch Capital Group Ltd. and Subsidiaries

Consolidated Statements of Income

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

	Three Months Ended																											Nine Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			September 30,			September 30,
	2009			2009			2009			2008			2008			2008			2008			2007			2007			2009			2008
Revenues
Gross premiums written	$	937,328		$	911,920		$	1,024,971		$	825,465		$	903,533		$	886,926		$	1,053,152		$	828,160		$	999,159		$	2,874,219		$	2,843,611
Net premiums written	$	727,308		$	693,854		$	822,863		$	615,574		$	692,692		$	686,118		$	811,342		$	577,666		$	694,630		$	2,244,025		$	2,190,152
Decrease (increase) in unearned premiums	7,077			5,404			(122,299		)	82,940			40,339			19,557			(103,108		)	134,550			40,899			(109,818		)	(43,212		)
Net premiums earned	734,385			699,258			700,564			698,514			733,031			705,675			708,234			712,216			735,529			2,134,207			2,146,940
Net investment income	100,213			100,485			95,882			111,745			117,022			117,120			122,193			120,807			118,464			296,580			356,335
Net realized gains (losses)	70,638			(11,793		)	(5,164		)	(27,704		)	(23,001		)	(1,920		)	48,686			38,463			16,868			53,681			23,765
Other-than-temporary impairment losses	(7,860		)	(37,381		)	(97,422		)	(75,169		)	(82,533		)	(10,749		)	(12,711		)	(19,731		)	(2,721		)	(142,663		)	(105,993		)
Less investment impairments recognized in other comprehensive income, before taxes	3,217			16,518			61,288			—			—			—			—			—			—			81,023			—
Net impairment losses recognized in earnings	(4,643		)	(20,863		)	(36,134		)	(75,169		)	(82,533		)	(10,749		)	(12,711		)	(19,731		)	(2,721		)	(61,640		)	(105,993		)
Fee income	826			817			925			1,456			944			1,238			1,068			1,866			1,610			2,568			3,250
Equity in net income (loss) of investment funds accounted for using the equity method	69,119			75,890			(9,581		)	(174,147		)	(1,731		)	19,583			(22,313		)	(906		)	(5,283		)	135,428			(4,461		)
Other income	5,687			4,950			3,951			211			3,067			4,968			4,036			5,483			2,696			14,588			12,071
Total revenues	976,225			848,744			750,443			534,906			746,799			835,915			849,193			858,198			867,163			2,575,412			2,431,907
Expenses
Losses and loss adjustment expenses	444,914			398,858			400,542			490,816			548,886			404,625			404,417			395,751			402,695			1,244,314			1,357,928
Acquisition expenses	122,739			123,814			126,458			123,231			133,413			119,226			114,639			111,702			131,424			373,011			367,278
Other operating expenses	99,743			99,294			87,116			100,385			95,652			102,578			97,187			101,275			95,545			286,153			295,417
Interest expense	6,001			5,712			5,712			6,285			6,241			5,788			5,524			5,523			5,524			17,425			17,553
Net foreign exchange (gains) losses	19,755			53,658			(25,205		)	(51,479		)	(68,395		)	(298		)	23,587			4,121			23,656			48,208			(45,106		)
Total expenses	693,152			681,336			594,623			669,238			715,797			631,919			645,354			618,372			658,844			1,969,111			1,993,070
Income before income taxes	283,073			167,408			155,820			(134,332		)	31,002			203,996			203,839			239,826			208,319			606,301			438,837
Income tax expense (benefit)	2,205			8,818			9,490			2,179			(1,849		)	5,253			7,956			(1,044		)	2,113			20,513			11,360
Net Income (Loss)	280,868			158,590			146,330			(136,511		)	32,851			198,743			195,883			240,870			206,206			585,788			427,477
Preferred dividends	6,461			6,461			6,461			6,461			6,461			6,461			6,461			6,461			6,461			19,383			19,383
Net income (loss) available to common shareholders	$	274,407		$	152,129		$	139,869		$	(142,972	)	$	26,390		$	192,282		$	189,422		$	234,409		$	199,745		$	566,405		$	408,094
Net income (loss) per common share
Basic	$	4.56		$	2.52		$	2.32		$	(2.38	)	$	0.44		$	3.05		$	2.90		$	3.44		$	2.87		$	9.39		$	6.50
Diluted (1)	$	4.39		$	2.43		$	2.24		$	(2.38	)	$	0.42		$	2.92		$	2.78		$	3.31		$	2.76		$	9.05		$	6.23
Weighted average common shares and common share equivalents outstanding
Basic	60,156,219			60,417,391			60,313,550			60,048,258			60,109,932			62,995,550			65,295,516			68,074,208			69,561,789			60,295,144			62,790,514
Diluted (1)	62,533,816			62,626,317			62,559,969			60,048,258			62,830,910			65,748,119			68,019,413			70,901,361			72,378,940			62,590,228			65,530,570

(1) Due to the net loss recorded in the 2008 fourth quarter, diluted weighted average common shares and common share equivalents for such period do not include 2.5 million dilutive common share equivalents since the inclusion of such common share equivalents would have had an anti-dilutive effect on the loss per share under GAAP.

2

Arch Capital Group Ltd. and Subsidiaries

Consolidated Balance Sheets

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

	September 30,		June 30,			March 31,			December 31,			September 30,			June 30,			March 31,		December 31,		September 30,
	2009		2009			2009			2008			2008			2008			2008		2007		2007
Assets
Investments:
Fixed maturities available for sale, at market value	$	9,265,961	$	8,944,110		$	8,540,653		$	8,122,221		$	7,544,831		$	7,746,296		$	7,591,695	$	7,137,998	$	7,342,238
Short-term investments available for sale, at market value	706,157		660,859			749,708			479,586			863,783			645,587			631,285		699,036		1,315,903
Investment of funds received under securities lending agreements, at market value	611,496		556,473			550,821			730,194			933,797			918,207			1,228,868		1,503,723		920,306
TALF investments, at market value (1)	250,517		—			—			—			—			—			—		—		—
Other investments	154,526		115,260			104,988			109,601			142,146			295,638			316,252		353,694		280,241
Investment funds accounted for using the equity method	376,381		370,165			293,452			301,027			384,139			351,879			294,379		235,975		216,917
Total investments	11,365,038		10,646,867			10,239,622			9,742,629			9,868,696			9,957,607			10,062,479		9,930,426		10,075,605
Cash	385,149		336,693			244,037			251,739			239,097			246,544			258,680		239,915		250,804
Accrued investment income	77,762		70,854			65,365			78,052			82,218			76,313			73,686		73,862		70,697
Investment in joint venture	101,473		100,656			101,143			98,341			98,951			100,000			—		—		—
Fixed maturities and short-term investments pledged under securities lending agreements, at market value	609,334		559,385			559,691			728,065			905,546			890,822			1,190,086		1,463,045		884,375
Premiums receivable	697,806		735,969			720,724			628,951			738,694			859,261			880,946		729,628		902,987
Unpaid losses and loss adjustment expenses recoverable	1,709,756		1,740,248			1,710,781			1,729,135			1,656,848			1,586,201			1,652,117		1,609,619		1,581,909
Paid losses and loss adjustment expenses recoverable	58,588		53,432			76,312			63,294			105,491			113,439			110,962		132,289		132,039
Prepaid reinsurance premiums	283,290		283,488			274,578			303,707			335,210			364,226			419,046		480,462		541,529
Deferred acquisition costs, net	303,826		307,896			313,973			295,192			310,916			319,732			311,364		290,059		301,974
Receivable for securities sold	998,431		1,192,659			1,191,896			105,073			1,099,000			1,053,379			671,354		17,359		82,383
Other assets	592,701		613,788			594,165			592,367			690,135			713,978			723,755		657,603		639,700
Total Assets	$	17,183,154	$	16,641,935		$	16,092,287		$	14,616,545		$	16,130,802		$	16,281,502		$	16,354,475	$	15,624,267	$	15,464,002
Liabilities
Reserve for losses and loss adjustment expenses	$	7,879,586	$	7,809,034		$	7,709,317		$	7,666,957		$	7,569,543		$	7,349,083		$	7,319,141	$	7,092,452	$	6,949,449
Unearned premiums	1,627,519		1,632,989			1,617,431			1,526,682			1,653,855			1,735,371			1,810,324		1,765,881		1,960,228
Reinsurance balances payable	159,898		158,974			146,981			138,509			214,550			254,830			322,280		301,309		336,134
Senior notes	300,000		300,000			300,000			300,000			300,000			300,000			300,000		300,000		300,000
Revolving credit agreement borrowings	100,000		100,000			100,000			100,000			100,000			100,000			—		—		—
TALF borrowings, at market value (1)	219,843		—			—			—			—			—			—		—		—
Securities lending payable	625,706		574,014			574,337			753,528			950,327			918,207			1,228,868		1,503,723		920,306
Payable for securities purchased	1,197,411		1,432,395			1,433,732			123,309			1,138,117			1,064,224			710,994		23,155		515,218
Other liabilities	612,369		604,561			580,093			574,595			687,700			673,554			658,324		601,936		607,872
Total Liabilities	12,722,332		12,611,967			12,461,891			11,183,580			12,614,092			12,395,269			12,349,931		11,588,456		11,589,207
Commitments and Contingencies
Shareholders�� Equity
Non-cumulative preferred shares	130		130			130			130			130			130			130		130		130
Common shares	595		610			605			605			602			619			646		673		691
Additional paid-in capital	917,204		1,006,315			996,417			994,585			977,059			1,089,636			1,269,821		1,451,667		1,577,284
Retained earnings	3,321,113		3,046,706			2,894,577			2,693,239			2,836,211			2,809,821			2,617,539		2,428,117		2,193,708
Accumulated other comprehensive income (loss), net of deferred income tax	221,780		(23,793		)	(261,333		)	(255,594		)	(297,292		)	(13,973		)	116,408		155,224		102,982
Total Shareholders’ Equity	4,460,822		4,029,968			3,630,396			3,432,965			3,516,710			3,886,233			4,004,544		4,035,811		3,874,795
Total Liabilities and Shareholders’ Equity	$	17,183,154	$	16,641,935		$	16,092,287		$	14,616,545		$	16,130,802		$	16,281,502		$	16,354,475	$	15,624,267	$	15,464,002
Common shares outstanding (2)	59,524,309		60,980,806			60,532,222			60,511,974			60,173,489			61,943,100			64,649,618		67,318,466		69,141,795
Book value per common share	$	69.48	$	60.76		$	54.61		$	51.36		$	53.04		$	57.49		$	56.92	$	55.12	$	51.34

(1) See page 14 for further details on the Company’s participation in the Term Asset-Backed Securities Loan Facility (��TALF”).

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

3

Arch Capital Group Ltd. and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

(U.S. dollars in thousands)

	Three Months Ended																											Nine Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			September 30,			September 30,
	2009			2009			2009			2008			2008			2008			2008			2007			2007			2009			2008
Non-Cumulative Preferred Shares
Balance at beginning and end of period	$	130		$	130		$	130		$	130		$	130		$	130		$	130		$	130		$	130		$	130		$	130
Common Shares
Balance at beginning of period	610			605			605			602			619			646			673			691			713			605			673
Common shares issued, net	1			5			0			3			1			2			0			2			0			6			3
Purchases of common shares under share repurchase program	(16		)	(0		)	(0		)	—			(18		)	(29		)	(27		)	(20		)	(22		)	(16		)	(74		)
Balance at end of period	595			610			605			605			602			619			646			673			691			595			602
Additional Paid-in Capital
Balance at beginning of period	1,006,315			996,417			994,585			977,059			1,089,636			1,269,821			1,451,667			1,577,284			1,716,295			994,585			1,451,667
Common shares issued	0			2,557			0			996			0			3,511			0			2,172			0			2,557			3,511
Exercise of stock options	2,905			705			528			10,593			4,146			5,324			3,749			3,505			1,721			4,138			13,219
Common shares retired	(98,632		)	(2,483		)	(3,760		)	(39		)	(123,510		)	(201,498		)	(190,278		)	(136,357		)	(145,865		)	(104,875		)	(515,286		)
Amortization of share-based compensation	6,576			9,949			4,318			5,974			6,792			12,911			4,600			5,053			5,095			20,843			24,303
Other	40			(830		)	746			2			(5		)	(433		)	83			10			38			(44		)	(355		)
Balance at end of period	917,204			1,006,315			996,417			994,585			977,059			1,089,636			1,269,821			1,451,667			1,577,284			917,204			977,059
																		��
Retained Earnings
Balance at beginning of period	3,046,706			2,894,577			2,693,239			2,836,211			2,809,821			2,617,539			2,428,117			2,193,708			1,993,963			2,693,239			2,428,117
Cumulative effect of change in accounting principle (1)	—			—			61,469			—			—			—			—			—			—			61,469			—
Balance at beginning of period, as adjusted	3,046,706			2,894,577			2,754,708			2,836,211			2,809,821			2,617,539			2,428,117			2,193,708			1,993,963			2,754,708			2,428,117
Dividends declared on preferred shares	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(19,383		)	(19,383		)
Net income (loss)	280,868			158,590			146,330			(136,511		)	32,851			198,743			195,883			240,870			206,206			585,788			427,477
Balance at end of period	3,321,113			3,046,706			2,894,577			2,693,239			2,836,211			2,809,821			2,617,539			2,428,117			2,193,708			3,321,113			2,836,211
Accumulated Other Comprehensive Income (Loss)
Balance at beginning of period	(23,793		)	(261,333		)	(255,594		)	(297,292		)	(13,973		)	116,408			155,224			102,982			(7,034		)	(255,594		)	155,224
Cumulative effect of change in accounting principle (1)	—			—			(61,469		)	—			—			—			—			—			—			(61,469		)	—
Balance at beginning of period, as adjusted	(23,793		)	(261,333		)	(317,063		)	(297,292		)	(13,973		)	116,408			155,224			102,982			(7,034		)	(317,063		)	155,224
Change in unrealized appreciation (decline) in value of investments, net of deferred income tax	248,581			241,588			119,277			64,976			(271,231		)	(131,446		)	(37,577		)	54,354			105,816			609,446			(440,254		)
Portion of other-than-temporary impairment losses recognized in other comprehensive income, net of deferred income tax	(3,217		)	(16,518		)	(61,288		)	—			—			—			—			—			—			(81,023		)	—
Foreign currency translation adjustments, net of deferred income tax	209			12,470			(2,259		)	(23,278		)	(12,088		)	1,065			(1,239		)	(2,112		)	4,200			10,420			(12,262		)
Balance at end of period	221,780			(23,793		)	(261,333		)	(255,594		)	(297,292		)	(13,973		)	116,408			155,224			102,982			221,780			(297,292		)
Total Shareholders’ Equity	$	4,460,822		$	4,029,968		$	3,630,396		$	3,432,965		$	3,516,710		$	3,886,233		$	4,004,544		$	4,035,811		$	3,874,795		$	4,460,822		$	3,516,710

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

4

Arch Capital Group Ltd. and Subsidiaries

Consolidated Statements of Comprehensive Income

(U.S. dollars in thousands)

	Three Months Ended																											Nine Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			September 30,			September 30,
	2009			2009			2009			2008			2008			2008			2008			2007			2007			2009			2008
Comprehensive Income (Loss)
Net income (loss)	$	280,868		$	158,590		$	146,330		$	(136,511	)	$	32,851		$	198,743		$	195,883		$	240,870		$	206,206		$	585,788		$	427,477
Other comprehensive income (loss), net of deferred income tax
Unrealized holding gains (losses) arising during period	300,733			219,648			62,757			(69,067		)	(386,052		)	(139,831		)	12,707			80,187			127,082			583,138			(513,176		)
Portion of other-than-temporary impairment losses recognized in other comprehensive income, net of deferred income tax	(3,217		)	(16,518		)	(61,288		)	—			—			—			—			—			—			(81,023		)	—
Reclassification of net realized (gains) losses, net of income taxes, included in net income	(52,152		)	21,940			56,520			134,043			114,821			8,385			(50,284		)	(25,833		)	(21,266		)	26,308			72,922
Foreign currency translation adjustments	209			12,470			(2,259		)	(23,278		)	(12,088		)	1,065			(1,239		)	(2,112		)	4,200			10,420			(12,262		)
Other comprehensive income (loss)	245,573			237,540			55,730			41,698			(283,319		)	(130,381		)	(38,816		)	52,242			110,016			538,843			(452,516		)
Comprehensive Income (Loss)	$	526,441		$	396,130		$	202,060		$	(94,813	)	$	(250,468	)	$	68,362		$	157,067		$	293,112		$	316,222		$	1,124,631		$	(25,039	)

5

Arch Capital Group Ltd. and Subsidiaries

Consolidated Statements of Cash Flows

(U.S. dollars in thousands)

	Three Months Ended																											Nine Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			September 30,			September 30,
	2009			2009			2009			2008			2008			2008			2008			2007			2007			2009			2008
Operating Activities
Net income (loss)	$	280,868		$	158,590		$	146,330		$	(136,511	)	$	32,851		$	198,743		$	195,883		$	240,870		$	206,206		$	585,788		$	427,477
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized (gains) losses	(69,281		)	11,831			5,620			28,383			23,916			2,955			(46,502		)	(38,463		)	(16,755		)	(51,830		)	(19,631		)
Net impairment losses included in earnings	4,643			20,863			36,134			75,169			82,533			10,749			12,711			19,731			2,721			61,640			105,993
Equity in net (income) loss of investment funds accounted for using the equity method and other income	(74,985		)	(80,662		)	10,428			173,955			(1,336		)	(24,286		)	18,277			(4,577		)	2,587			(145,219		)	(7,345		)
Share-based compensation	6,576			9,949			4,318			5,974			6,792			12,911			4,600			5,053			5,095			20,843			24,303
Changes in:
Reserve for losses and loss adjustment expenses, net of unpaid losses and loss adjustment expenses recoverable	79,701			5,151			83,763			226,284			153,860			95,859			182,498			114,883			129,814			168,615			432,217
Unearned premiums, net of prepaid reinsurance premiums	(6,983		)	(4,775		)	120,867			(75,899		)	(51,494		)	(20,133		)	105,497			(133,360		)	(38,940		)	109,109			33,870
Premiums receivable	41,108			(916		)	(94,777		)	18,896			115,653			21,679			(148,197		)	174,098			140,753			(54,585		)	(10,865		)
Deferred acquisition costs, net	4,356			8,513			(18,933		)	10,955			9,229			(8,491		)	(21,319		)	11,940			7,759			(6,064		)	(20,581		)
Reinsurance balances payable	(85		)	6,187			11,278			(31,791		)	(74,317		)	(67,451		)	19,677			(35,429		)	(47,758		)	17,380			(122,091		)
Other liabilities	(5,849		)	5,189			2,802			(131,774		)	2,140			7,791			40,490			(4,721		)	28,945			2,142			50,421
Other items, net	56,240			83,822			(13,027		)	2,460			82,362			25,937			(29,070		)	(17,155		)	6,156			127,035			79,229
Net Cash Provided By Operating Activities	316,309			223,742			294,803			166,101			382,189			256,263			334,545			332,870			426,583			834,854			972,997
Investing Activities
Purchases of fixed maturity investments	(7,672,665		)	(6,565,606		)	(3,632,350		)	(6,012,984		)	(4,184,587		)	(3,737,610		)	(3,772,652		)	(6,103,826		)	(5,417,802		)	(17,870,621		)	(11,694,849		)
Proceeds from sales of fixed maturity investments	7,312,976			6,104,789			3,377,680			5,456,446			3,970,441			3,521,141			3,523,338			5,280,324			5,231,766			16,795,445			11,014,920
Proceeds from redemptions and maturities of fixed maturity investments	261,604			208,276			168,758			137,665			127,312			180,437			136,932			149,535			188,665			638,638			444,681
Purchases of TALF investments	(250,231		)	—			—			—			—			—			—			—			—			(250,231		)	—
Purchases of other investments	(36,485		)	(9,681		)	(22,670		)	(254,729		)	(38,036		)	(40,837		)	(146,815		)	(313,388		)	(43,870		)	(68,836		)	(225,688		)
Proceeds from sales of other investments	50,658			(4,233		)	24,027			224,466			146,388			24,098			65,226			141,697			20			70,452			235,712
Investment in joint venture	—			—			—			—			—			(100,000		)	—			—			—			—			(100,000		)
Net (purchases) sales of short-term investments	(48,395		)	143,819			(204,924		)	312,038			(280,724		)	(13,462		)	74,201			653,433			(226,906		)	(109,500		)	(219,985		)
Change in investment of securities lending collateral	(51,692		)	323			179,191			196,799			(32,120		)	310,661			274,855			(583,417		)	194,653			127,822			553,396
Purchases of furniture, equipment and other	(4,067		)	(3,872		)	(7,647		)	(2,745		)	(1,772		)	(1,939		)	(3,045		)	(15,391		)	(3,607		)	(15,586		)	(6,756		)
Net Cash Provided By (Used For) Investing Activities	(438,297		)	(126,185		)	(117,935		)	56,956			(293,098		)	142,489			152,040			(791,033		)	(77,081		)	(682,417		)	1,431
Financing Activities
Purchases of common shares under share repurchase program	(98,194		)	—			(1,552		)	—			(123,377		)	(199,910		)	(189,843		)	(136,361		)	(145,732		)	(99,746		)	(513,130		)
Proceeds from common shares issued, net	2,152			308			(1,688		)	10,497			3,334			5,510			2,540			4,859			1,212			772			11,384
Revolving credit agreement borrowings	—			—			—			—			—			100,000			—			—			—			—			100,000
TALF borrowings	219,843			—			—			—			—			—			—			—			—			219,843			—
Change in securities lending collateral	51,692			(323		)	(179,191		)	(196,799		)	32,120			(310,661		)	(274,855		)	583,417			(194,653		)	(127,822		)	(553,396		)
Other	88			(1,291		)	742			698			502			616			660			634			324			(461		)	1,778
Preferred dividends paid	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(6,461		)	(19,383		)	(19,383		)
Net Cash Provided By (Used For) Financing Activities	169,120			(7,767		)	(188,150		)	(192,065		)	(93,882		)	(410,906		)	(467,959		)	446,088			(345,310		)	(26,797		)	(972,747		)
Effects of exchange rate changes on foreign currency cash	1,324			2,866			3,580			(18,350		)	(2,656		)	18			139			1,186			1,469			7,770			(2,499		)
Increase (decrease) in cash	48,456			92,656			(7,702		)	12,642			(7,447		)	(12,136		)	18,765			(10,889		)	5,661			133,410			(818		)
Cash beginning of period	336,693			244,037			251,739			239,097			246,544			258,680			239,915			250,804			245,143			251,739			239,915
Cash end of period	$	385,149		$	336,693		$	244,037		$	251,739		$	239,097		$	246,544		$	258,680		$	239,915		$	250,804		$	385,149		$	239,097
Income taxes paid (received), net	$	4,234		$	19,887		$	2,231		$	(994	)	$	7,124		$	2,723		$	2,510		$	746		$	1,236		$	26,352		$	12,357
Interest paid	$	529		$	11,312		$	184		$	11,802		$	724		$	11,259		$	0		$	11,025		$	0		$	12,025		$	11,983

6

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Overview

The Company classifies its businesses into two underwriting segments — insurance and reinsurance — and corporate and other (non-underwriting). The Company’s insurance and reinsurance operating segments each have segment managers who are responsible for the overall profitability of their respective segments and who are directly accountable to the Company’s chief operating decision makers, the President and Chief Executive Officer of ACGL and the Chief Financial Officer of ACGL. The chief operating decision makers do not assess performance, measure return on equity or make resource allocation decisions on a line of business basis. The Company determined its reportable operating segments using the management described in accounting guidance regarding disclosures about segments of an enterprise and related information.

Management measures segment performance based on underwriting income or loss. The Company does not manage its assets by segment and, accordingly, investment income is not allocated to each underwriting segment. In addition, other revenue and expense items are not evaluated by segment. The accounting policies of the segments are the same as those used for the preparation of the Company’s consolidated financial statements. Intersegment business is allocated to the segment accountable for the underwriting results.

The insurance segment consists of the Company’s insurance underwriting subsidiaries which primarily write on both an admitted and non-admitted basis. The insurance segment consists of eleven specialty product lines: casualty; construction; executive assurance; healthcare; national accounts casualty; professional liability; programs; property, energy, marine and aviation; surety; travel and accident; and other (consisting of excess workers’ compensation, employers’ liability and collateral protection business).

The reinsurance segment consists of the Company’s reinsurance underwriting subsidiaries. The reinsurance segment generally seeks to write significant lines on specialty property and casualty reinsurance contracts. Classes of business include: casualty; marine and aviation; other specialty; property catastrophe; property excluding property catastrophe (losses on a single risk, both excess of loss and pro rata); and other (consisting of non-traditional and casualty clash business).

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

7

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Three Months Ended September 30, 2009 and 2008

(U.S. dollars in thousands)

	Three Months Ended									Three Months Ended
	September 30, 2009									September 30, 2008
	Insurance			Reinsurance			Total			Insurance			Reinsurance			Total
Gross premiums written (1)	$	673,986		$	266,193		$	937,328		$	678,338		$	228,593		$	903,533
Net premiums written	473,676			253,632			727,308			466,115			226,577			692,692
Net premiums earned	$	443,319		$	291,066		$	734,385		$	441,049		$	291,982		$	733,031
Policy-related fee income	814			—			814			872			—			872
Other underwriting-related fee income	—			12			12			—			72			72
Fee income	814			12			826			872			72			944
Losses and loss adjustment expenses	(303,304		)	(141,610		)	(444,914		)	(337,456		)	(211,430		)	(548,886		)
Acquisition expenses, net	(60,964		)	(61,775		)	(122,739		)	(62,752		)	(70,661		)	(133,413		)
Other operating expenses	(72,452		)	(21,271		)	(93,723		)	(71,861		)	(18,331		)	(90,192		)
Underwriting income	$	7,413		$	66,422		73,835			$	(30,148	)	$	(8,368	)	(38,516		)
Net investment income							100,213									117,022
Net realized gains (losses)							70,638									(23,001		)
Net impairment losses recognized in earnings							(4,643		)							(82,533		)
Equity in net income (loss) of investment funds accounted for using the equity method							69,119									(1,731		)
Other income							5,687									3,067
Other expenses							(6,020		)							(5,460		)
Interest expense							(6,001		)							(6,241		)
Net foreign exchange gains (losses)							(19,755		)							68,395
Income before income taxes							283,073									31,002
Income tax expense							(2,205		)							1,849
Net income							280,868									32,851
Preferred dividends							(6,461		)							(6,461		)
Net income available to common shareholders							$	274,407								$	26,390
Underwriting Ratios
Loss ratio	68.4		%	48.7		%	60.6		%	76.5		%	72.4		%	74.9		%
Acquisition expense ratio (2)	13.6		%	21.2		%	16.6		%	14.0		%	24.2		%	18.1		%
Other operating expense ratio	16.3		%	7.3		%	12.8		%	16.3		%	6.3		%	12.3		%
Combined ratio	98.3		%	77.2		%	90.0		%	106.8		%	102.9		%	105.3		%
Net premiums written to gross premiums written	70.3		%	95.3		%	77.6		%	68.7		%	99.1		%	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)	The acquisition expense ratio is adjusted to include certain fee income.

8

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Nine Months Ended September 30, 2009 and 2008

(U.S. dollars in thousands)

	Nine Months Ended									Nine Months Ended
	September 30, 2009									September 30, 2008
	Insurance			Reinsurance			Total			Insurance			Reinsurance			Total
Gross premiums written (1)	$	1,949,040		$	934,711		$	2,874,219		$	1,926,349		$	935,738		$	2,843,611
Net premiums written	1,334,580			909,445			2,244,025			1,290,380			899,772			2,190,152
Net premiums earned	$	1,261,870		$	872,337		$	2,134,207		$	1,276,734		$	870,206		$	2,146,940
Policy-related fee income	2,479			—			2,479			2,634			—			2,634
Other underwriting-related fee income	—			89			89			—			616			616
Fee income	2,479			89			2,568			2,634			616			3,250
Losses and loss adjustment expenses	(860,669		)	(383,645		)	(1,244,314		)	(887,392		)	(470,536		)	(1,357,928		)
Acquisition expenses, net	(177,335		)	(195,676		)	(373,011		)	(170,041		)	(197,237		)	(367,278		)
Other operating expenses	(206,196		)	(56,406		)	(262,602		)	(217,064		)	(56,660		)	(273,724		)
Underwriting income	$	20,149		$	236,699		256,848			$	4,871		$	146,389		151,260
Net investment income							296,580									356,335
Net realized gains (losses)							53,681									23,765
Net impairment losses recognized in earnings							(61,640		)							(105,993		)
Equity in net income (loss) of investment funds accounted for using the equity method							135,428									(4,461		)
Other income							14,588									12,071
Other expenses							(23,551		)							(21,693		)
Interest expense							(17,425		)							(17,553		)
Net foreign exchange gains (losses)							(48,208		)							45,106
Income before income taxes							606,301									438,837
Income tax expense							(20,513		)							(11,360		)
Net income							585,788									427,477
Preferred dividends							(19,383		)							(19,383		)
Net income available to common shareholders							$	566,405								$	408,094
Underwriting Ratios
Loss ratio	68.2		%	44.0		%	58.3		%	69.5		%	54.1		%	63.2		%
Acquisition expense ratio (2)	13.9		%	22.4		%	17.4		%	13.1		%	22.7		%	17.0		%
Other operating expense ratio	16.3		%	6.5		%	12.3		%	17.0		%	6.5		%	12.7		%
Combined ratio	98.4		%	72.9		%	88.0		%	99.6		%	83.3		%	92.9		%
Net premiums written to gross premiums written	68.5		%	97.3		%	78.1		%	67.0		%	96.2		%	77.0		%

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

9

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Insurance Segment

(U.S. dollars in thousands)

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2009				2008				2009				2008
	Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total
Net premiums written
Property, energy, marine and aviation	$	118,536	25.0	%	$	91,461	19.6	%	$	310,950	23.3	%	$	278,372	21.6	%
Programs	66,964		14.1	%	78,045		16.7	%	214,050		16.0	%	205,830		16.0	%
Professional liability	66,002		13.9	%	70,778		15.2	%	175,783		13.2	%	188,442		14.6	%
Executive assurance	58,529		12.4	%	53,665		11.5	%	161,527		12.1	%	139,574		10.8	%
Construction	36,823		7.8	%	43,916		9.4	%	129,584		9.7	%	133,501		10.3	%
Casualty	26,753		5.6	%	28,456		6.1	%	80,509		6.0	%	88,160		6.8	%
National accounts casualty	30,726		6.5	%	16,609		3.6	%	62,535		4.7	%	39,080		3.0	%
Travel and accident	15,998		3.4	%	16,949		3.6	%	53,089		4.0	%	49,550		3.8	%
Surety	12,025		2.5	%	16,599		3.6	%	32,637		2.4	%	37,672		2.9	%
Healthcare	10,854		2.3	%	11,411		2.4	%	31,740		2.4	%	33,435		2.6	%
Other (1)	30,466		6.5	%	38,226		8.3	%	82,176		6.2	%	96,764		7.6	%
Total	$	473,676	100.0	%	$	466,115	100.0	%	$	1,334,580	100.0	%	$	1,290,380	100.0	%
Net premiums earned
Property, energy, marine and aviation	$	94,471	21.3	%	$	88,903	20.2	%	$	246,881	19.6	%	$	257,191	20.1	%
Programs	69,436		15.7	%	71,576		16.2	%	207,914		16.5	%	190,648		14.9	%
Professional liability	57,540		13.0	%	62,987		14.3	%	172,323		13.7	%	197,997		15.5	%
Executive assurance	56,094		12.7	%	47,237		10.7	%	156,198		12.4	%	136,141		10.7	%
Construction	42,495		9.6	%	45,601		10.3	%	126,279		10.0	%	127,543		10.0	%
Casualty	30,004		6.8	%	37,351		8.5	%	93,948		7.4	%	117,949		9.2	%
National accounts casualty	19,969		4.5	%	13,503		3.1	%	47,487		3.8	%	31,178		2.4	%
Travel and accident	18,193		4.1	%	17,671		4.0	%	49,547		3.9	%	49,150		3.8	%
Surety	12,239		2.8	%	13,891		3.1	%	37,771		3.0	%	39,447		3.1	%
Healthcare	12,303		2.8	%	12,292		2.8	%	34,061		2.7	%	38,874		3.0	%
Other (1)	30,575		6.7	%	30,037		6.8	%	89,461		7.0	%	90,616		7.3	%
Total	$	443,319	100.0	%	$	441,049	100.0	%	$	1,261,870	100.0	%	$	1,276,734	100.0	%
Net premiums written by client location
United States	$	342,112	72.2	%	$	348,306	74.7	%	$	998,531	74.8	%	$	957,715	74.2	%
Europe	68,109		14.4	%	57,155		12.3	%	208,631		15.6	%	200,112		15.5	%
Other	63,455		13.4	%	60,654		13.0	%	127,418		9.6	%	132,553		10.3	%
Total	$	473,676	100.0	%	$	466,115	100.0	%	$	1,334,580	100.0	%	$	1,290,380	100.0	%
Net premiums written by underwriting location
United States	$	336,552	71.1	%	$	354,002	75.9	%	$	972,847	72.9	%	$	959,440	74.4	%
Europe	117,900		24.9	%	97,548		20.9	%	301,518		22.6	%	279,413		21.7	%
Other	19,224		4.0	%	14,565		3.2	%	60,215		4.5	%	51,527		3.9	%
Total	$	473,676	100.0	%	$	466,115	100.0	%	$	1,334,580	100.0	%	$	1,290,380	100.0	%

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

10

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Insurance Segment

(U.S. dollars in thousands)

	Three Months Ended																											Nine Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			September 30,			September 30,
	2009			2009			2009			2008			2008			2008			2008			2007			2007			2009			2008
Gross premiums written	$	673,986		$	636,645		$	638,409		$	564,570		$	678,338		$	621,663		$	626,348		$	591,679		$	722,688		$	1,949,040		$	1,926,349
Net premiums written	$	473,676		$	419,318		441,586			367,223			466,115			421,501			402,764			377,357			460,019			1,334,580			1,290,380
Net premiums earned	$	443,319		$	417,454		$	401,097		$	398,355		$	441,049		$	416,585		$	419,100		$	426,352		$	429,584		$	1,261,870		$	1,276,734
Policy-related fee income	$	814		$	795			870			811			872			880			882			908			732			2,479			2,634
Other underwriting-related fee income	$	0		$	0			—			—			—			—			—			418			304			—			—
Fee income	814			795			870			811			872			880			882			1,326			1,036			2,479			2,634
Losses and loss adjustment expenses	$	(303,304	)	$	(287,350	)	(270,015		)	(307,136		)	(337,456		)	(262,633		)	(287,303		)	(271,893		)	(273,896		)	(860,669		)	(887,392		)
Acquisition expenses, net	$	(60,964	)	$	(58,748	)	(57,623		)	(54,498		)	(62,752		)	(55,400		)	(51,889		)	(54,596		)	(52,880		)	(177,335		)	(170,041		)
Other operating expenses	$	(72,452	)	$	(70,836	)	(62,908		)	(71,819		)	(71,861		)	(71,566		)	(73,637		)	(68,677		)	(68,548		)	(206,196		)	(217,064		)
Underwriting income (loss)	$	7,413		$	1,315		$	11,421		$	(34,287	)	$	(30,148	)	$	27,866		$	7,153		$	32,512		$	35,296		$	20,149		$	4,871
Underwriting Ratios
Loss ratio	68.4		%	68.8		%	67.3		%	77.1		%	76.5		%	63.0		%	68.6		%	63.8		%	63.8		%	68.2		%	69.5		%
Acquisition expense ratio (1)	13.6		%	13.9		%	14.1		%	13.5		%	14.0		%	13.1		%	12.2		%	12.6		%	12.1		%	13.9		%	13.1		%
Other operating expense ratio	16.3		%	17.0		%	15.7		%	18.0		%	16.3		%	17.2		%	17.6		%	16.1		%	16.0		%	16.3		%	17.0		%
Combined ratio	98.3		%	99.7		%	97.1		%	108.6		%	106.8		%	93.3		%	98.4		%	92.5		%	91.9		%	98.4		%	99.6		%
Net premiums written
Property, energy, marine and aviation	$	118,536		$	86,385		$	106,029		$	56,263		$	91,461		$	89,674		$	97,237		$	54,789		$	85,178		$	310,950		$	278,372
Programs	66,964			72,279			74,807			64,619			78,045			73,202			54,583			50,524			67,792			214,050			205,830
Professional liability	66,002			57,773			52,008			58,449			70,778			63,583			54,081			65,832			80,708			175,783			188,442
Executive assurance	58,529			52,919			50,079			54,028			53,665			43,740			42,169			46,511			46,845			161,527			139,574
Construction	36,823			56,190			36,571			31,989			43,916			50,105			39,480			41,133			40,615			129,584			133,501
Casualty	26,753			27,217			26,539			27,936			28,456			31,161			28,543			35,975			46,392			80,509			88,160
National accounts casualty	30,726			7,582			24,227			8,856			16,609			9,416			13,055			7,967			8,976			62,535			39,080
Travel and accident	15,998			19,557			17,534			12,436			16,949			15,948			16,653			15,715			14,109			53,089			49,550
Surety	12,025			9,254			11,358			12,704			16,599			10,206			10,867			11,114			13,233			32,637			37,672
Healthcare	10,854			9,667			11,219			11,161			11,411			11,027			10,997			13,892			15,952			31,740			33,435
Other (2)	30,466			20,495			31,215			28,782			38,226			23,439			35,099			33,905			40,219			82,176			96,764
Total	$	473,676		$	419,318		$	441,586		$	367,223		$	466,115		$	421,501		$	402,764		$	377,357		$	460,019		$	1,334,580		$	1,290,380
Net premiums earned
Property, energy, marine and aviation	$	94,471		$	78,570		$	73,840		$	76,586		$	88,903		$	83,830		$	84,458		$	79,574		$	81,233		$	246,881		$	257,191
Programs	69,436			71,809			66,669			66,462			71,576			62,085			56,987			58,249			59,518			207,914			190,648
Professional liability	57,540			56,549			58,234			58,195			62,987			66,200			68,810			67,281			67,256			172,323			197,997
Executive assurance	56,094			52,288			47,816			45,192			47,237			44,496			44,408			44,887			46,481			156,198			136,141
Construction	42,495			43,364			40,420			38,603			45,601			39,225			42,717			44,975			43,174			126,279			127,543
Casualty	30,004			31,246			32,698			35,251			37,351			38,292			42,306			47,458			50,248			93,948			117,949
National accounts casualty	19,969			13,079			14,439			10,924			13,503			9,752			7,923			7,995			7,258			47,487			31,178
Travel and accident	18,193			18,198			13,156			13,414			17,671			15,994			15,485			16,561			14,469			49,547			49,150
Surety	12,239			12,141			13,391			12,109			13,891			12,057			13,499			14,874			16,597			37,771			39,447
Healthcare	12,303			10,830			10,928			10,880			12,292			13,137			13,445			15,256			16,249			34,061			38,874
Other (2)	30,575			29,380			29,506			30,739			30,037			31,517			29,062			29,242			27,101			89,461			90,616
Total	$	443,319		$	417,454		$	401,097		$	398,355		$	441,049		$	416,585		$	419,100		$	426,352		$	429,584		$	1,261,870		$	1,276,734

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

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

11

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Reinsurance Segment

(U.S. dollars in thousands)

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2009				2008				2009				2008
	Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total
Net premiums written
Casualty (1)	$	85,084	33.5	%	$	82,497	36.4	%	$	257,006	28.3	%	$	275,458	30.6	%
Property excluding property catastrophe (2)	90,845		35.8	%	56,105		24.8	%	300,502		33.0	%	237,775		26.4	%
Property catastrophe	50,539		19.9	%	44,591		19.7	%	234,423		25.8	%	203,612		22.6	%
Other specialty	10,595		4.2	%	24,013		10.6	%	54,611		6.0	%	120,386		13.4	%
Marine and aviation	16,187		6.4	%	18,727		8.3	%	60,101		6.6	%	58,866		6.5	%
Other	382		0.2	%	644		0.2	%	2,802		0.3	%	3,675		0.5	%
Total	$	253,632	100.0	%	$	226,577	100.0	%	$	909,445	100.0	%	$	899,772	100.0	%
Net premiums earned
Casualty (1)	$	88,721	30.5	%	$	106,146	36.4	%	$	258,745	29.7	%	$	319,993	36.8	%
Property excluding property catastrophe (2)	94,837		32.6	%	68,670		23.5	%	278,372		31.9	%	199,456		22.9	%
Property catastrophe	61,772		21.2	%	57,015		19.5	%	179,136		20.5	%	158,792		18.2	%
Other specialty	23,251		8.0	%	36,388		12.5	%	82,613		9.5	%	110,930		12.7	%
Marine and aviation	21,666		7.4	%	22,395		7.7	%	71,559		8.2	%	76,772		8.8	%
Other	819		0.3	%	1,368		0.4	%	1,912		0.2	%	4,263		0.6	%
Total	$	291,066	100.0	%	$	291,982	100.0	%	$	872,337	100.0	%	$	870,206	100.0	%
Net premiums written
Pro rata	$	147,132	58.0	%	$	149,023	65.8	%	$	469,293	51.6	%	$	532,467	59.2	%
Excess of loss	106,500		42.0	%	77,554		34.2	%	440,152		48.4	%	367,305		40.8	%
Total	$	253,632	100.0	%	$	226,577	100.0	%	$	909,445	100.0	%	$	899,772	100.0	%
Net premiums earned
Pro rata	$	170,571	58.6	%	$	187,656	64.3	%	$	540,754	62.0	%	$	574,802	66.1	%
Excess of loss	120,495		41.4	%	104,326		35.7	%	331,583		38.0	%	295,404		33.9	%
Total	$	291,066	100.0	%	$	291,982	100.0	%	$	872,337	100.0	%	$	870,206	100.0	%
Net premiums written by client location
United States	$	174,932	69.0	%	$	125,650	55.5	%	$	598,090	65.8	%	$	495,935	55.1	%
Europe	30,291		11.9	%	52,841		23.3	%	171,574		18.9	%	255,133		28.4	%
Bermuda	30,209		11.9	%	34,354		15.2	%	100,441		11.0	%	109,198		12.1	%
Other	18,200		7.2	%	13,732		6.0	%	39,340		4.3	%	39,506		4.4	%
Total	$	253,632	100.0	%	$	226,577	100.0	%	$	909,445	100.0	%	$	899,772	100.0	%
Net premiums written by underwriting location
Bermuda	$	140,448	55.4	%	$	131,777	58.2	%	$	520,940	57.3	%	$	512,581	57.0	%
United States	106,305		41.9	%	86,671		38.3	%	331,650		36.5	%	333,780		37.1	%
Other	6,879		2.7	%	8,129		3.5	%	56,855		6.2	%	53,411		5.9	%
Total	$	253,632	100.0	%	$	226,577	100.0	%	$	909,445	100.0	%	$	899,772	100.0	%

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

(2) Includes facultative business.

12

Arch Capital Group Ltd. and Subsidiaries

Segment Information — Reinsurance Segment

(U.S. dollars in thousands)

	Three Months Ended																											Nine Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			September 30,			September 30,
	2009			2009			2009			2008			2008			2008			2008			2007			2007			2009			2008
Gross premiums written	$	266,193		$	278,389		$	390,129		$	266,165		$	228,593		$	273,318		$	433,827		$	245,371		$	286,272		$	934,711		$	935,738
Net premiums written	253,632			274,536			381,277			248,351			226,577			264,617			408,578			200,309			234,611			909,445			899,772
Net premiums earned	$	291,066		$	281,804		$	299,467		$	300,159		$	291,982		$	289,090		$	289,134		$	285,864		$	305,945		$	872,337		$	870,206
Policy-related fee income	—			—			—			—			—			—			—			—			—			—			—
Other underwriting-related fee income	12			22			55			645			72			358			186			540			574			89			616
Fee income	12			22			55			645			72			358			186			540			574			89			616
Losses and loss adjustment expenses	(141,610		)	(111,508		)	(130,527		)	(183,680		)	(211,430		)	(141,992		)	(117,114		)	(123,858		)	(128,799		)	(383,645		)	(470,536		)
Acquisition expenses, net	(61,775		)	(65,066		)	(68,835		)	(68,733		)	(70,661		)	(63,826		)	(62,750		)	(57,106		)	(78,544		)	(195,676		)	(197,237		)
Other operating expenses	(21,271		)	(16,943		)	(18,192		)	(21,761		)	(18,331		)	(20,091		)	(18,238		)	(25,126		)	(22,153		)	(56,406		)	(56,660		)
Underwriting income (loss)	$	66,422		$	88,309		$	81,968		$	26,630		$	(8,368	)	$	63,539		$	91,218		$	80,314		$	77,023		$	236,699		$	146,389
Underwriting Ratios
Loss ratio	48.7		%	39.6		%	43.6		%	61.2		%	72.4		%	49.1		%	40.5		%	43.3		%	42.1		%	44.0		%	54.1		%
Acquisition expense ratio	21.2		%	23.1		%	23.0		%	22.9		%	24.2		%	22.1		%	21.7		%	20.0		%	25.7		%	22.4		%	22.7		%
Other operating expense ratio	7.3		%	6.0		%	6.1		%	7.2		%	6.3		%	6.9		%	6.3		%	8.8		%	7.2		%	6.5		%	6.5		%
Combined ratio	77.2		%	68.7		%	72.7		%	91.3		%	102.9		%	78.1		%	68.5		%	72.1		%	75.0		%	72.9		%	83.3		%
Net premiums written
Casualty (1)	$	85,084		$	72,490		$	99,432		$	71,740		$	82,497		$	86,974		$	105,987		$	107,909		$	103,718		$	257,006		$	275,458
Property excluding property catastrophe (2)	90,845			90,569			119,088			90,909			56,105			85,748			95,922			40,729			43,341			300,502			237,775
Property catastrophe	50,539			91,981			91,903			27,534			44,591			52,797			106,224			8,762			35,268			234,423			203,612
Other specialty	10,595			3,304			40,712			26,066			24,013			20,693			75,680			13,664			33,145			54,611			120,386
Marine and aviation	16,187			15,391			28,523			31,867			18,727			17,975			22,164			29,156			17,903			60,101			58,866
Other	382			801			1,619			235			644			430			2,601			89			1,236			2,802			3,675
Total	$	253,632		$	274,536		$	381,277		$	248,351		$	226,577		$	264,617		$	408,578		$	200,309		$	234,611		$	909,445		$	899,772
Net premiums earned
Casualty (1)	$	88,721		$	84,078		$	85,946		$	95,990		$	106,146		$	106,199		$	107,648		$	118,160		$	115,862		$	258,745		$	319,993
Property excluding property catastrophe (2)	94,837			87,304			96,231			78,778			68,670			67,445			63,341			63,676			62,699			278,372			199,456
Property catastrophe	61,772			58,763			58,601			60,975			57,015			51,496			50,281			44,951			53,703			179,136			158,792
Other specialty	23,251			25,912			33,450			36,255			36,388			36,058			38,484			30,741			49,232			82,613			110,930
Marine and aviation	21,666			25,063			24,830			26,877			22,395			26,946			27,431			25,950			21,889			71,559			76,772
Other	819			684			409			1,284			1,368			946			1,949			2,386			2,560			1,912			4,263
Total	$	291,066		$	281,804		$	299,467		$	300,159		$	291,982		$	289,090		$	289,134		$	285,864		$	305,945		$	872,337		$	870,206

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

(2) Includes facultative business.

13

Arch Capital Group Ltd. and Subsidiaries

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

(U.S. dollars in thousands)

	September 30,					June 30,					March 31,					December 31,					September 30,
	2009					2009					2009					2008					2008
Investable assets:
Fixed maturities available for sale, at market value	$	9,265,961		80	%	$	8,944,110		83	%	$	8,540,653		83	%	$	8,122,221		81	%	$	7,544,831		75	%
Fixed maturities pledged under securities lending agreements, at market value (1)	609,334			5	%	559,385			5	%	503,449			5	%	626,501			6	%	901,559			9	%
Total fixed maturities	9,875,295			85	%	9,503,495			88	%	9,044,102			88	%	8,748,722			87	%	8,446,390			84	%
Short-term investments available for sale, at market value	706,157			6	%	660,859			6	%	749,708			7	%	479,586			5	%	863,783			9	%
Short-term investments pledged under securities lending agreements, at market value (1)	—			0	%	—			0	%	56,242			1	%	101,564			1	%	3,987			0	%
Cash	385,149			4	%	336,693			3	%	244,037			2	%	251,739			3	%	239,097			2	%
TALF investments, at market value (2)	250,517			2	%	—			—		—			—		—			—		—			—
Other investments
Fixed income mutual funds	55,646			1	%	49,505			0	%	32,912			0	%	39,858			0	%	60,051			1	%
Privately held securities and other (Aeolus LP, etc.)	98,880			1	%	65,755			1	%	72,076			1	%	69,743			1	%	82,095			1	%
Investment funds accounted for using the equity method	376,381			3	%	370,165			4	%	293,452			3	%	301,027			3	%	384,139			4	%
Securities transactions entered into but not settled at the balance sheet date	(198,980		)	(2	)%	(239,736		)	(2	)%	(241,836		)	(2	)%	(18,236		)	0	%	(39,117		)	(1	)%
Total investable assets (1)	$	11,549,045		100	%	$	10,746,736		100	%	$	10,250,693		100	%	$	9,974,003		100	%	$	10,040,425		100	%
Fixed income metrics (1):
Average effective duration (in years)	3.09					3.02					3.02					3.62					3.44
Average credit quality	AA+					AA+					AA+					AA+					AA+
Imbedded book yield (before investment expenses)	3.93		%			4.06		%			4.17		%			4.55		%			4.74		%
Credit quality distribution of total fixed maturities (1) (3):
AAA	$	7,124,679		72	%	$	7,163,333		75	%	$	7,146,184		79	%	$	6,756,503		77	%	$	6,202,446		73	%
AA	1,232,298			12	%	1,013,732			10	%	833,192			9	%	815,512			9	%	1,177,943			14	%
A	786,142			8	%	734,015			8	%	645,995			7	%	750,947			9	%	651,915			8	%
BBB	274,338			3	%	267,107			3	%	178,854			2	%	195,319			2	%	205,362			2	%
BB	75,030			1	%	65,242			1	%	54,094			1	%	52,349			1	%	46,283			1	%
B	231,047			2	%	178,196			2	%	126,670			1	%	126,688			1	%	109,544			1	%
Lower than B	69,921			1	%	29,446			0	%	11,825			0	%	9,549			0	%	8,868			0	%
Not rated	81,840			1	%	52,424			1	%	47,288			1	%	41,855			1	%	44,029			1	%
Total fixed maturities, at market value	$	9,875,295		100	%	$	9,503,495		100	%	$	9,044,102		100	%	$	8,748,722		100	%	$	8,446,390		100	%

(1)In securities lending transactions, the Company receives collateral in excess of the market value of the fixed maturities and short-term investments pledged under securities lending agreements. This table excludes the collateral received and reinvested and includes the fixed maturities and short-term investments pledged under securities lending agreements, at market value.

(2)The Company participates in the Federal Reserve’s Term Asset-Backed Securities Loan Facility (“TALF”), which provides secured financing for asset-backed securities backed by certain types of consumer and small-business loans and legacy commercial mortgage-backed securities. TALF financing is non-recourse to the Company, is collateralized by the purchased securities and provides financing for the purchase price of the securities, less a haircut’ that varies based on the type of collateral. The Company can deliver the collateralized securities to the Federal Reserve in full defeasance of the loan. As of September 30, 2009, the Company had $250.5 million of securities purchased under TALF which are reflected as “TALF investments, at market value” and has $219.8 million of secured financing from the Federal Reserve that is reflected as “TALF borrowings, at market value.” The Company is carrying the TALF investments and TALF borrowings at market value.

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

14

Arch Capital Group Ltd. and Subsidiaries

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

(U.S. dollars in thousands)

The following table summarizes the Company’s fixed maturities and fixed maturities pledged under securities lending agreements, excluding TALF investments, at September 30, 2009:

			Gross		Gross			Net					Estimated
	Estimated		Unrealized		Unrealized			Unrealized			Amortized		Market Value /
	Market Value		Gains		Losses			Gains (Losses)			Cost		Amortized Cost
Corporate bonds	$	3,099,701	$	142,953	$	(15,445	)	$	127,508		$	2,972,193	104.3	%
Mortgage backed securities	1,708,414		25,898		(60,721		)	(34,823		)	1,743,237		98.0	%
U.S. government and government agencies	1,480,190		24,338		(2,995		)	21,343			1,458,847		101.5	%
Commercial mortgage backed securities	1,170,712		35,284		(10,946		)	24,338			1,146,374		102.1	%
Asset backed securities	497,293		22,763		(13,607		)	9,156			488,137		101.9	%
Municipal bonds	910,903		55,911		(4		)	55,907			854,996		106.5	%
Non-U.S. government securities	1,008,082		54,444		(4,936		)	49,508			958,574		105.2	%
Total	$	9,875,295	$	361,591	$	(108,654	)	$	252,937		$	9,622,358	102.6	%

Corporate Exposures:

The following table summarizes the Company’s corporate bonds by major sector at September 30, 2009:

	Estimated Market Value
			% of Asset		% of Investable
	Total		Class		Assets
Sector:
Financials	$	1,039,839	33.5	%	9.0	%
Industrials	770,532		24.9	%	6.7	%
Foreign agencies	598,484		19.3	%	5.2	%
Utilities	73,570		2.4	%	0.6	%
All other (1)	617,276		19.9	%	5.3	%
Total	$	3,099,701	100.0	%	26.8	%

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

The following table summarizes the Company’s corporate bonds by credit quality distribution at September 30, 2009:

	Estimated Market Value
			% of Asset		% of Investable
	Total		Class		Assets
Rating:
AAA	$	1,290,327	41.6	%	11.2	%
AA	558,360		18.0	%	4.8	%
A	648,652		20.9	%	5.6	%
BBB	257,974		8.3	%	2.2	%
BB	48,263		1.6	%	0.4	%
B	178,709		5.8	%	1.5	%
Lower than B	21,367		0.7	%	0.2	%
Not rated	96,049		3.1	%	0.8	%
Total	$	3,099,701	100.0	%	26.8	%

The following table summarizes the Company’s top ten exposures to fixed income corporate issuers at September 30, 2009:

	Estimated Market Value
	Government		Not
	Guaranteed (1)		Guaranteed		Total
JPMorgan Chase & Co.	$	61,102	$	84,965	$	146,067
Bank of America Corp.	44,054		57,555		101,609
General Electric Capital Corp.	49,123		43,477		92,600
GMAC LLC	81,592		—		81,592
Anz National (Int’l) Limited	79,840		1,557		81,397
Commonwealth Bank of Australia	79,879		—		79,879
Swedish Housing Finance Corp.	77,601		—		77,601
Instituto de Crédito Oficial	73,021		—		73,021
Société Financement de l’Econ.	67,886		—		67,886
Barclays PLC	28,751		38,981		67,732
Total	$	642,849	$	226,535	$	869,384

(1) Securities of US-domiciled issuers are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”), a U.S. government agency, under the Temporary Liquidity Guarantee Program. Anz National (Int’l) Limited, Commonwealth Bank of Australia, Swedish Housing Finance Corp., Instituto de Crédito Oficial, Société Financement de l’Economie Française and Barclays PLC are guaranteed by foreign governments.

15

Arch Capital Group Ltd. and Subsidiaries

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

(U.S. dollars in thousands)

The following table provides information on the Company’s mortgage backed securities (“MBS”) and commercial mortgage backed securities (“CMBS”) at September 30, 2009, excluding amounts guaranteed by the U.S. government:

				Average	Estimated Market Value
	Issuance	Amortized		Credit			% of Amortized		% of Investable
	Year	Cost		Quality	Total		Cost		Assets
Non-agency MBS:	2003	$	2,735	AAA	$	2,609	95.4	%	0.0	%
	2004	24,708		AA	20,567		83.2	%	0.2	%
	2005	86,295		A-	66,132		76.6	%	0.6	%
	2006	60,121		BB-	49,049		81.6	%	0.4	%
	2007	90,707		B+	73,138		80.6	%	0.6	%
	2008	13,084		AAA	10,553		80.7	%	0.1	%
	2009 (6)	127,186		AAA	130,660		102.7	%	1.1	%
Total non-agency MBS		$	404,836	A-	$	352,708	87.1	%	3.1	%
Non-agency CMBS:	1998	$	3,737	AAA	$	3,568	95.5	%	0.0	%
	1999	264		AAA	265		100.4	%	0.0	%
	2000	115,316		AAA	118,175		102.5	%	1.0	%
	2001	163,323		AAA	167,597		102.6	%	1.5	%
	2002	66,024		AAA	68,334		103.5	%	0.6	%
	2003	78,840		AAA	81,288		103.1	%	0.7	%
	2004	33,345		AAA	32,482		97.4	%	0.3	%
	2005	86,531		AAA	83,361		96.3	%	0.7	%
	2006	63,012		AAA	63,575		100.9	%	0.6	%
	2007	39,299		AAA	40,281		102.5	%	0.3	%
Total non-agency CMBS		$	649,691	AAA	$	658,926	101.4	%	5.7	%

	Non-Agency		Non-Agency
Additional Statistics	MBS		CMBS (1)
Wtd. average loan age (months)	40		85
Wtd. average life (months) (2)	44		21
Wtd. average loan-to-value % (3)	70.6	%	58.3	%
Total delinquencies (4)	17.2	%	3.9	%
Current credit support % (5)	21.0	%	29.4	%

(1)Loans defeased with government/agency obligations represented approximately 22% of the collateral underlying the Company’s CMBS holdings.

(2)The weighted average life for MBS is based on the interest rates in effect at September 30, 2009.  The weighted average life for CMBS reflects the average life of the collateral underlying the Company’s CMBS holdings.

(3)The range of loan-to-values on MBS is 40% to 88%, while the range of loan-to-values on CMBS is 56% to 84%.

(4)Total delinquencies includes 60 days and over.

(5)Current credit support % represents the % for a collateralized mortgage obligation (“CMO”) or CMBS class/tranche from other subordinate classes in the same CMO or CMBS deal.

(6)Represents Re-REMICs issued in 2009 with an average credit quality of “AAA” from Fitch Ratings.

The following table provides information on the Company’s asset backed securities (“ABS”) at September 30, 2009:

			Average	Estimated Market Value
	Amortized		Credit			% of Amortized		% of Investable
	Cost		Quality	Total		Cost		Assets
Sector:
Autos (1)	$	188,363	AAA	$	195,991	104.0	%	1.7	%
Credit cards (2)	164,830		AAA	174,784		106.0	%	1.5	%
Rate reduction bonds (3)	62,473		AAA	65,791		105.3	%	0.6	%
Student loans (4)	20,500		AAA	21,525		105.0	%	0.2	%
Equipment (5)	14,998		AAA	15,686		104.6	%	0.1	%
Other	7,822		AA+	6,925		88.5	%	0.1	%
	458,986		AAA	480,702		104.7	%	4.2	%
Home equity (6)	$	15,288	AAA	$	10,702	70.0	%	0.1	%
	4,143		AA	1,359		32.8	%	0.0	%
	139		A	29		20.9	%	0.0	%
	1,064		BB	320		30.1	%	0.0	%
	5,363		B	3,186		59.4	%	0.0	%
	1,834		CCC	734		40.0	%	0.0	%
	585		CC	165		28.2	%	0.0	%
	735		D	96		13.1	%	0.0	%
	29,151		A	16,591		56.9	%	0.1	%
Total ABS	$	488,137	AAA	$	497,293	101.9	%	4.3	%

The effective duration of the total ABS was 1.1 years at September 30, 2009.

(1)The weighted average credit support % on autos is 21.5%.

(2)The average excess spread % on credit cards is 17.8%.

(3)The weighted average credit support % on rate reduction bonds is 0.6%.

(4)The weighted average credit support % on student loans is 6.4%.

(5)The weighted average credit support % on equipment is 10.2%.

(6)The weighted average credit support % on home equity is 33%.

The Company’s investment portfolio included $53.0 million par in sub-prime securities at September 30, 2009, with an estimated market value of $16.6 million and an average credit quality of “Baa3/A.” Such amounts were primarily in the home equity sector with the balance in other ABS, MBS and CMBS sectors. In addition, the portfolio of collateral backing the Company’s securities lending program contains approximately $20.8 million estimated market value of sub-prime securities with an average credit quality of “BBB-” from Standard & Poors and “Ba3” from Moody’s.

16

Arch Capital Group Ltd. and Subsidiaries

Investment Information — Bank Loan Investments

(U.S. dollars in thousands)

The Company’s investments in bank loan funds are included in the following categories at September 30, 2009:

	Carrying		% of Asset		% of Investable
	Value		Class		Assets
Investment funds accounted for using the equity method	$	280,702	61.2	%	2.4	%
Corporate bonds, at market value	137,668		30.0	%	1.2	%
Other investments, at market value	39,956		8.8	%	0.3	%
Total	$	458,326	100.0	%	4.0	%

The following table summarizes the Company’s bank loan funds by currency (translated into U.S. Dollars) at September 30, 2009:

	Carrying		% of Asset		% of Investable
	Value		Class		Assets
U.S.-denominated	$	302,271	66.0	%	2.6	%
Euro-denominated	156,055		34.0	%	1.4	%
Total	$	458,326	100.0	%	4.0	%

The following table summarizes the Company’s bank loan funds by major sector at September 30, 2009:

	Carrying			% of Asset		% of Investable
	Value			Class		Assets
Sector:
Healthcare, education and childcare	$	53,540		11.7	%	0.5	%
Diversified / conglomerate service	48,675			10.6	%	0.4	%
Broadcasting and entertainment	44,760			9.8	%	0.4	%
Printing and publishing	43,842			9.6	%	0.4	%
Chemicals, plastics and rubber	29,680			6.5	%	0.3	%
Utilities	26,400			5.8	%	0.2	%
All other	211,429			46.0	%	1.8	%
Total	$	458,326		100.0	%	4.0	%
Additional Statistics:
Weighted average rating factor (Moody’s)	B2
Weighted average carrying value as % of par value	79.8		%
Estimated % of “CCC” and lower rated holdings	10.5		%

17

Arch Capital Group Ltd. and Subsidiaries

Comments on Regulation G

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

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

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

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

18

Arch Capital Group Ltd. and Subsidiaries

Operating Income Reconciliation

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

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

	Three Months Ended																											Nine Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			September 30,			September 30,
	2009			2009			2009			2008 (1)			2008			2008			2008			2007			2007			2009			2008
After-tax operating income available to common shareholders	$	160,332		$	163,041		$	169,001		$	85,934		$	64,094		$	185,375		$	201,983		$	221,520		$	214,582		$	492,374		$	451,452
Net realized gains (losses), net of tax	69,190			(11,243		)	(9,111		)	(30,836		)	(21,904		)	(2,174		)	45,782			37,413			16,577			48,836			21,704
Net impairment losses recognized in earnings, net of tax	(4,643		)	(20,786		)	(36,134		)	(75,169		)	(82,514		)	(10,694		)	(12,646		)	(19,202		)	(2,698		)	(61,563		)	(105,854		)
Equity in net income (loss) of investment funds accounted for using the equity method, net of tax	69,119			75,890			(9,581		)	(174,147		)	(1,731		)	19,583			(22,313		)	(906		)	(5,283		)	135,428			(4,461		)
Net foreign exchange gains (losses), net of tax	(19,591		)	(54,773		)	25,694			51,246			68,445			192			(23,384		)	(4,416		)	(23,433		)	(48,670		)	45,253
Net income (loss) available to common shareholders	$	274,407		$	152,129		$	139,869		$	(142,972	)	$	26,390		$	192,282		$	189,422		$	234,409		$	199,745		$	566,405		$	408,094
Diluted per common share results:
After-tax operating income available to common shareholders	$	2.56		$	2.60		$	2.70		$	1.43		$	1.02		$	2.82		$	2.97		$	3.12		$	2.96		$	7.87		$	6.89
Net realized gains (losses), net of tax	1.11			(0.18		)	(0.14		)	(0.51		)	(0.35		)	(0.03		)	0.67			0.53			0.23			0.78			0.33
Net impairment losses recognized in earnings, net of tax	(0.08		)	(0.33		)	(0.58		)	(1.25		)	(1.31		)	(0.17		)	(0.19		)	(0.27		)	(0.04		)	(0.98		)	(1.62		)
Equity in net income (loss) of investment funds accounted for using the equity method, net of tax	1.11			1.21			(0.15		)	(2.90		)	(0.03		)	0.30			(0.33		)	(0.01		)	(0.07		)	2.16			(0.07		)
Net foreign exchange gains (losses), net of tax	(0.31		)	(0.87		)	0.41			0.85			1.09			0.00			(0.34		)	(0.06		)	(0.32		)	(0.78		)	0.70
Net income (loss) available to common shareholders	$	4.39		$	2.43		$	2.24		$	(2.38	)	$	0.42		$	2.92		$	2.78		$	3.31		$	2.76		$	9.05		$	6.23
Weighted average common shares and common share equivalents outstanding — diluted	62,533,816			62,626,317			62,559,969			60,048,258			62,830,910			65,748,119			68,019,413			70,901,361			72,378,940			62,590,228			65,530,570

	Pro Forma (1)
Diluted per common share results:
After-tax operating income available to common shareholders	$	1.37
Net realized gains (losses), net of tax	(0.49		)
Net impairment losses recognized in earnings, net of tax	(1.20		)
Equity in net income (loss) of investment funds accounted for using the equity method, net of tax	(2.78		)
Net foreign exchange gains (losses), net of tax	0.82
Net income (loss) available to common shareholders	$	(2.28	)
Weighted average common shares and common share equivalents outstanding — diluted	62,587,256

(1) Due to the net loss recorded in the 2008 fourth quarter, diluted weighted average common shares and common share equivalents as reported do not include 2.5 million dilutive common share equivalents since the inclusion of such common share equivalents would have had an anti-dilutive effect on the loss per share under GAAP. The 2008 fourth quarter pro forma per diluted share amounts include such dilutive common share equivalents in order to make comparisons to the 2007 fourth quarter more meaningful.

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Arch Capital Group Ltd. and Subsidiaries

Annualized Operating Return on Average Common Equity

(U.S. dollars in thousands)

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

	Three Months Ended																											Nine Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,			September 30,			September 30,
	2009			2009			2009			2008			2008			2008			2008			2007			2007			2009			2008
After-tax operating income available to common shareholders	$	160,332		$	163,041		$	169,001		$	85,934	��	$	64,094		$	185,375		$	201,983		$	221,520		$	214,582		$	492,374		$	451,452
Annualized after-tax operating income available to common shareholders (a)	$	641,328		$	652,164		$	676,004		$	343,736		$	256,376		$	741,500		$	807,932		$	886,080		$	858,328		$	656,499		$	601,936
Beginning common shareholders’ equity	$	3,704,968		$	3,305,396		$	3,107,965		$	3,191,710		$	3,561,233		$	3,679,544		$	3,710,811		$	3,549,795		$	3,379,067		$	3,107,965		$	3,710,811
Ending common shareholders’ equity	$	4,135,822		$	3,704,968		$	3,305,396		$	3,107,965		$	3,191,710		$	3,561,233		$	3,679,544		$	3,710,811		$	3,549,795		4,135,822			3,191,710
Average common shareholders’ equity (b)	$	3,920,395		$	3,505,182		$	3,206,681		$	3,149,838		$	3,376,472		$	3,620,389		$	3,695,178		$	3,630,303		$	3,464,431		$	3,621,894		$	3,451,261
Annualized operating return on average common equity (a)/(b)	16.4		%	18.6		%	21.1		%	10.9		%	7.6		%	20.5		%	21.9		%	24.4		%	24.8		%	18.1		%	17.4		%

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Arch Capital Group Ltd. and Subsidiaries

Capital Structure

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

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

	September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,
	2009			2009			2009			2008			2008			2008			2008			2007			2007
Debt:
Senior notes, due May 1, 2034 (7.35%)	$	300,000		$	300,000		$	300,000		$	300,000		$	300,000		$	300,000		$	300,000		$	300,000		$	300,000
Revolving credit agreement borrowings, due August 30, 2011 (variable)	100,000			100,000			100,000			100,000			100,000			100,000			—			—			—
Total debt	$	400,000		$	400,000		$	400,000		$	400,000		$	400,000		$	400,000		$	300,000		$	300,000		$	300,000
Shareholders’ Equity
Series A non-cumulative preferred shares (8.0%) (1)	$	200,000		$	200,000		$	200,000		$	200,000		$	200,000		$	200,000		$	200,000		$	200,000		$	200,000
Series B non-cumulative preferred shares (7.875%) (2)	125,000			125,000			125,000			125,000			125,000			125,000			125,000			125,000			125,000
Preferred shareholders’ equity	325,000			325,000			325,000			325,000			325,000			325,000			325,000			325,000			325,000
Common shareholders’ equity (a)	4,135,822			3,704,968			3,305,396			3,107,965			3,191,710			3,561,233			3,679,544			3,710,811			3,549,795
Total shareholders’ equity	$	4,460,822		$	4,029,968		$	3,630,396		$	3,432,965		$	3,516,710		$	3,886,233		$	4,004,544		$	4,035,811		$	3,874,795
Total capital	$	4,860,822		$	4,429,968		$	4,030,396		$	3,832,965		$	3,916,710		$	4,286,233		$	4,304,544		$	4,335,811		$	4,174,795
TALF non-recourse borrowings, at market value, due between 2012 to 2014 (various) (3)	219,843			—			—			—			—			—			—			—			—
Total capital and TALF non-recourse borrowings	$	5,080,665		$	4,429,968		$	4,030,396		$	3,832,965		$	3,916,710		$	4,286,233		$	4,304,544		$	4,335,811		$	4,174,795
Common shares outstanding (4) (b)	59,524,309			60,980,806			60,532,222			60,511,974			60,173,489			61,943,100			64,649,618			67,318,466			69,141,795
Book value per common share (a)/(b)	$	69.48		$	60.76		$	54.61		$	51.36		$	53.04		$	57.49		$	56.92		$	55.12		$	51.34
Leverage ratios:
Senior notes/total capital	6.2		%	6.8		%	7.4		%	7.8		%	7.7		%	7.0		%	7.0		%	6.9		%	7.2		%
Revolving credit agreement borrowings/total capital	2.1		%	2.3		%	2.5		%	2.6		%	2.6		%	2.3		%	0.0		%	0.0		%	0.0		%
Debt/total capital	8.2		%	9.0		%	9.9		%	10.4		%	10.2		%	9.3		%	7.0		%	6.9		%	7.2		%
Preferred/total capital	6.7		%	7.3		%	8.1		%	8.5		%	8.3		%	7.6		%	7.6		%	7.5		%	7.8		%
Debt and preferred/total capital	14.9		%	16.4		%	18.0		%	18.9		%	18.5		%	16.9		%	14.5		%	14.4		%	15.0		%

(1)	8,000,000 shares, $25 liquidation preference, redeemable by Company on or after February 1, 2011.
(2)	5,000,000 shares, $25 liquidation preference, redeemable by Company on or after May 15, 2011.
(3)	The Company participates in the Federal Reserve’s Term Asset-Backed Securities Loan Facility (“TALF”), which provides secured financing for asset-backed securities backed by certain types of consumer and small-business loans and legacy commercial mortgage-backed securities. TALF financing is non-recourse to the Company, is collateralized by the purchased securities and provides financing for the purchase price of the securities, less a ‘haircut’ that varies based on the type of collateral. The Company can deliver the collateralized securities to the Federal Reserve in full defeasance of the loan. As of September 30, 2009, the Company had $250.5 million of securities purchased under TALF which are reflected as “TALF investments, at market value” and has $219.8 million of secured financing from the Federal Reserve which is reflected as “TALF borrowings, at market value.” The Company excludes the TALF non-recourse borrowings from the calculations of total capital and related leverage ratios due to the nature of the borrowings. If the TALF non-recourse borrowings were included in total capital, the ratio of debt to total capital would have been 12.2% and the ratio of debt and preferred to total capital would have been 18.6% at September 30, 2009.
(4)	Excludes the effects of stock options and restricted stock units outstanding.

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