Arch Capital Reports Net Premiums of $223M for 2ndQ

August 12, 2002

Bermuda-based Arch Capital Group Ltd. reported that net premiums written for the 2002 second quarter were $223.0 million, of which the company’s reinsurance and insurance operations contributed net premiums written of $176.6 million and $46.4 million, respectively.

For the six months ended June 30, 2002, net premiums written were $503.7 million, of which the company’s reinsurance and insurance operations contributed net premiums written of $441.5 million and $62.2 million, respectively. The company also reported that, for the period from January 1 to July 31, 2002, its reinsurance subsidiaries have entered into reinsurance treaties and other reinsurance arrangements that are expected to provide approximately $800 million of annualized net reinsurance premiums, a substantial portion of which will be recorded in calendar year 2002.

The company’s after-tax operating income was $15.5 million, or $0.27 per share, and for the six months ended June 30, 2002, after-tax operating income was $23.9 million, or $0.43 per share. Net income for the 2002 second quarter was $19.2 million, or $0.33 per share, and for the six months ended June 30, 2002, net income was $23.2 million, or $0.42 per share. Net income for the 2002 second quarter and for the six months ended June 30, 2002 included a benefit of $7.4 million, or $0.12 and $0.13 per diluted share, respectively, resulting from a reversal of a valuation allowance on certain of the company’s deferred tax assets. Such reversal was based on the company’s recently completed restructuring of its U.S.-based insurance underwriting operations and its business plan. In addition, the company recorded an after-tax provision for non-cash compensation in the 2002 second quarter and for the six months ended June 30, 2002 of $8.1 million, or $0.14 per diluted share, and $11.8 million, or $0.21 per diluted share, respectively, related to the vesting of restricted common shares.

In the 2002 second quarter, net foreign exchange gains of $3,352,000 consisted of an unrealized gain of $3,263,000 and a realized gain of $89,000. Net foreign exchange gains for the six months ended June 30, 2002 of $3,244,000 consisted of an unrealized gain of $3,263,000 and a realized loss of $19,000.

Other operating expenses were $14.9 million for the 2002 second quarter, compared to $4.8 million for the 2001 second quarter. For the first six months of 2002, other operating expenses were $28.2 million, compared to $8.4 million for the same prior year period. The increase in other operating expenses was due to acquisitions completed by the company in 2001 and the operating expenses associated with the company’s new underwriting initiatives.

Net investment income for the 2002 second quarter was $11.6 million, compared to $3.1 million in the 2001 second quarter. For the first six months of 2002, net investment income was $20.8 million, compared to $6.2 million for the same prior year period.

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