Arch Capital Group Ltd. Reports 2000 Second Quarter Results.

    Business Editors

      GREENWICH, Conn.--(BUSINESS WIRE)--August 10, 2000--Arch Capital
Group Ltd. (NASDAQ:ACGL) today reported 2000 second quarter results.
      For the 2000 second quarter, the Company reported comprehensive
income of $5.3 million, which was composed of a net loss of $2.6
million and other comprehensive income of $7.9 million, consisting of
the change in after-tax unrealized depreciation of investments.
Comprehensive income included an after-tax gain of $3.4 million
related to the sale of the Company's reinsurance operations to
Folksamerica Reinsurance Company ("Folksamerica"); net loss included
$1.9 million related to the sale. The 2000 second quarter net loss
also included after-tax realized investment losses of $239,000 and
equity in net income of investees of $609,000. These amounts compare
with comprehensive income for the 1999 second quarter of $8.7 million,
which was composed of net income of $15.9 million and the change in
after-tax unrealized appreciation of investments of $7.2 million. The
1999 second quarter net income included after-tax realized investment
gains of $15.2 million and equity in net income of investees of
$196,000.
      For the first half of 2000, comprehensive loss was $32.8 million,
which was composed of net income of $3.3 million and other
comprehensive loss of $36.1 million, which consisted of the change in
after-tax unrealized depreciation of investments. For the first half
of 2000, net income included after-tax realized investment gains of
$18.8 million and equity in net income of investees of $639,000. These
amounts compare with comprehensive loss for the first half of 1999 of
$26.8 million, which was composed of a net loss of $9.1 million and
the change in after-tax unrealized appreciation of investments of
$17.7 million. Net loss for the first half of 1999 included after-tax
realized investment gains of $14.5 million and equity in net income of
investees of $33,000, and a loss of $383,000 from the cumulative
effect of an accounting change.

      Following is a table of per share data on an after-tax basis:
-0-
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                        Three Months Ended         Six Months Ended
                             June 30,                    June 30,
                         2000         1999          2000         1999

Basic and diluted
  earnings per share:
Operating income
  (loss) (1)            ($0.08)       $0.03        ($1.03)     ($1.36)

Net realized investment
  gains (losses)         (0.02)        0.89          1.35        0.85

Equity in net income
  of investees            0.05         0.01          0.05

(Loss) on sale of
  reinsurance operations (0.16)                     (0.14)

Cumulative effect of
  accounting change                                             (0.02)

Net income (loss)        (0.21)        0.93          0.23       (0.53)

Change in unrealized
  appreciation
  (depreciation) of
  investments             0.64        (0.42)        (2.58)      (1.04)

Comprehensive income
  (loss)                 $0.43        $0.51        ($2.35)      $1.57

      (1) Represents net income (loss), excluding after-tax realized
investment gains (losses), equity in net income of investees, loss on
sale of reinsurance operations, and the cumulative effect of an
accounting change.

      At June 30, 2000, consolidated stockholders' equity totaled $254.9
million, compared with $346.5 million at December 31, 1999. On a basic
and diluted basis, book value per share was $20.56 based on 12,400,117
shares outstanding at June 30, 2000, compared with $20.28 based on
17,087,970 shares outstanding at December 31, 1999. Book value and per
share amounts at June 30, 2000 reflect the repurchase on March 2, 2000
from XL Capital Ltd of all of the 4,755,000 shares of the Company's
common stock XL Capital previously held for a repurchase price of
$59.2 million, or $12.45 per share.
      The Company consummated the previously announced sale of its
reinsurance operations to Folksamerica on May 5, 2000. Following the
completion of a post-closing actuarial review and independent audit of
the net assets sold, the parties agreed upon net post-closing
adjustments in the amount of approximately $3.2 million payable by the
Company, which consisted of a $4.2 million reduction in the purchase
price less $1 million in net book value of the assets and liabilities
actually transferred at closing.
      The Company recorded a net book value gain on the sale of
approximately $3.4 million, or $0.27 per share, based on 12,400,117
shares outstanding, which amount includes such post-closing
adjustments. The net book value gain on the sale of the reinsurance
operations is calculated as follows (in millions):

*T

  Gain on sale                         $7.5
  Tax expense (1)                       4.1

  Net gain                              3.4
  Realized (loss) on securities
    transferred at market value (2)    (5.3)

  Net (loss)                           (1.9)
  Change in after-tax unrealized
    depreciation of investments (2)     5.3

  Comprehensive income and net
    book value gain                    $3.4
                                    ==========

(1) The related income tax expense includes a charge of $1.5
million resulting from the Company's deferred tax asset valuation
allowance.
(2) The related income tax benefit of $1.9 million was offset by
an equivalent deferred tax asset valuation allowance.

*T

      Prior to recording the transfer and assumption of reinsurance
liabilities to Folksamerica upon the closing of the sale of its
reinsurance operations, net premiums written for the second quarter
and first half of 2000 were $29.4 million and $82.3 million,
respectively, and the statutory combined ratios for the second quarter
and first half of 2000 were 118.3% and 123.8%, respectively.
      After-tax net investment income for the 2000 second quarter was
$2.9 million, or $0.23 per share, compared with $3.5 million, or $0.21
per share, for the 1999 second quarter. For the first half of 2000,
after-tax net investment income was $6.6 million, or $0.47 per share,
compared with $6.7 million, or $0.39 per share, for the same prior
year period.
      On May 5, 2000, the Company transferred $248.2 million of fixed
maturities and short-term investments to Folksamerica in connection
with the sale of the Company's reinsurance operations. At June 30,
2000, the Company's cash and investment portfolio totaled $259.3
million, consisting of approximately 30% in fixed maturity securities,
8% in securities held in escrow, 17% in publicly traded equity
securities, 23% in privately held securities, and 22% in cash and
short-term investments.
      At June 30, 2000, the Company's investment portfolio included $44
million of publicly traded equity securities. At such date, there were
11 investments in privately held securities totaling $61 million, with
outstanding commitments to provide capital in the amount of $20.3
million. Outstanding commitments include the remaining $16.1 million
commitment to Trident II, L.P., an investment fund dedicated to making
private equity and equity related investments in the global insurance,
reinsurance and related industries.
      The Company has a deferred income tax asset valuation allowance
that adjusts the deferred income tax asset to its estimated net
realizable value. During the second quarter, the Company increased
such valuation allowance by $1.2 million to $13.3 million as of June
30, 2000, which adjusted the deferred income tax asset to $4.8
million. Deferred income tax expense for the 2000 second quarter and
the six months ended June 30, 2000 included charges for such allowance
of $3.9 million and $10.2 million, respectively. The deferred income
tax benefit on the change in net unrealized depreciation of
investments was increased by $2.7 million for the 2000 second quarter
and decreased by $3.1 million for the six months ended June 30, 2000
for such valuation allowance.

      The change in after-tax net unrealized depreciation of investments
of $36.1 million for the first half of 2000 reflects the following (in
millions):
*T
                                  June 30,     December 31,
                                   2000             1999       Change

  Pre-tax unrealized
    appreciation (depreciation)   ($8.9)            $41.8      ($50.7)
  Deferred income tax (benefit)
    expense                        (3.1)             14.6       (17.7)
  Valuation allowance               3.1                           3.1

  After-tax unrealized
    appreciation (depreciation)   ($8.9)            $27.2      ($36.1)
*T

      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 the Company
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 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. Important factors
that could cause actual events or results to differ materially from
those indicated in such statements are discussed below and elsewhere
in this release and include:

    --  the availability of investments on attractive terms;

    --  competition, including increased competition;

    --  changes in the performance of the insurance sector of the
        public equity markets or market professionals' views as to
        such sector;

    --  general economic conditions;

    --  regulatory changes and conditions;

    --  claims development, including as to the frequency or severity
        of claims and the timing of payments, on aviation business and
        business produced by a certain managing underwriting agency
        for which the Company has retained exposure under certain
        indemnity obligations to Folksamerica in connection with the
        asset sale;

    --  our future business operations and strategy; and

    --  loss of key personnel.

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

      Upon request, an Earnings Release Supplement containing additional
financial information for the 2000 second quarter may be obtained
without charge from the Company.
*T

               ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
       CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
                   (in thousands, except share data)
                              (Unaudited)

                       Three Months Ended         Six Months Ended
                            June 30,                  June 30,
                        2000         1999        2000         1999

Premiums and Other
  Revenues
Net premiums written   ($63,493)    $91,517      ($10,604)   $155,954
(Increase) decrease in
  unearned premiums      92,861      (4,529)       98,134      (6,044)

Net premiums earned      29,368      86,988        87,530     149,910
Net investment income     4,257       4,817         9,547       9,300
Gain on sale of
  reinsurance operations  2,191                     2,191
Net investment
  gains (losses)           (367)     23,386        28,933      22,234

Total revenues           35,449     115,191       128,201     181,444

Expenses
Claims and claims
  expenses               22,388      65,438        76,263     146,170
Commissions and
  brokerage              10,003      22,869        26,756      42,407
Other operating
  expenses                1,678       3,772         4,246       7,433
Foreign exchange (gain)
  loss                                 (450)        1,159         (62)

Total expenses           34,069      91,629       108,424     195,948

Income (Loss) Before
 Income Taxes, Equity
 In Net Income of
 Investees and Cumulative
 Effect of Accounting
 Change                   1,380      23,562        19,777     (14,504)

Federal income taxes:
Current                               4,748                    (1,252)
Deferred                  4,541       3,127        17,160      (4,494)

Income tax expense
  (benefit)               4,541       7,875        17,160      (5,746)

Income (Loss) Before
  Equity in Net Income
  of Investees and
  Cumulative Effect
  of Accounting Change   (3,161)     15,687         2,617      (8,758)

Equity in net income
  of investees              609         196           639          33

Income (Loss) Before
  Cumulative Effect of
  Accounting Change      (2,552)     15,883         3,256      (8,725)

Cumulative effect of
  accounting change                                              (383)

Net Income (Loss)        (2,552)     15,883         3,256      (9,108)

Other Comprehensive
 Income (Loss), Net of Tax

Change in net unrealized
  appreciation
  (depreciation) of
  investments, net
  of tax                  7,884      (7,163)      (36,046)    (17,663)

Comprehensive Income
  (Loss)                 $5,332      $8,720      ($32,790)   ($26,771)

Average shares
  outstanding
Basic                12,379,371  17,085,826    13,948,267  17,086,212
Diluted              12,381,576  17,085,826    13,949,503  17,086,292

Per Share Data
Net Income (Loss)
  - Basic and diluted    ($0.21)      $0.93         $0.23      ($0.53)
Comprehensive Income
  (Loss) - Basic and
   diluted                $0.43       $0.51        ($2.35)     ($1.57)


               ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
                      CONSOLIDATED BALANCE SHEET
                 (in thousands, except per share data)
                                          (Unaudited)
                                           June 30,      December 31,
                                            2000            1999

Assets
Investments:
Fixed maturities (amortized cost:
  2000, $82,557 1999, $270,345)            $77,481           $261,067
Publicly traded equity securities
  (cost:  2000, $46,671; 1999, $105,747)    44,231            158,631
Privately held securities
  (cost:  2000, $62,437; 1999, $85,748)     61,043             83,969
Securities held in escrow
  (amortized cost: 2000, $20,265)           20,317
Short-term investments                      38,806             72,785

Total investments                          241,878            576,452

Cash                                        17,374              9,457
Accrued investment income                    1,870              4,527
Premiums receivable                                           119,320
Reinsurance recoverable                                        73,122
Deferred policy acquisition costs                              23,585
Investment accounts receivable                 491
Federal income tax recoverable                                  8,758
Deferred income tax asset                    4,779              7,834
Other insurance assets                                         36,975
Other assets                                 2,191              4,329

Total Assets                              $268,583           $864,359

Liabilities
Claims and claims expenses                                   $364,554
Unearned premiums                                             108,743
Reinsurance balances payable                                   14,666
Investment accounts payable                   $749
Other insurance liabilities                                    24,541
Other liabilities                           12,929              5,341

Total Liabilities                           13,678            517,845

Commitments and Contingencies

Stockholders' Equity
Preferred stock, $.01 par value:
  20,000,000 shares authorized (none issued)
Common stock, $.01 par value:
  80,000,000 shares authorized
  (issued:  2000, 17,190,532; 1999,
  17,109,736)                                  172                171
Additional paid-in capital                 343,255            342,034
Deferred compensation under stock
  award plan                                  (943)              (317)
Retained earnings (deficit)                (18,919)           (22,175)
Less treasury stock, at cost
  (2000, 4,790,415; 1999, 21,766 shares)   (59,802)              (387)
Accumulated other comprehensive income
  (loss) consisting of unrealized
  (depreciation) appreciation of
  investments, net of income tax            (8,858)           27,188

Total Stockholders' Equity                 254,905            346,514

Total Liabilities & Stockholders' Equity  $268,583           $864,359

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    --30--sds/ny*

    CONTACT: Arch Capital Group Ltd.
             Debra M. O'Connor, Senior Vice President,
             Controller & Treasurer, 203/862-4354

    KEYWORD: CONNECTICUT
    INDUSTRY KEYWORD: BANKING INSURANCE LEGAL/LAW EARNINGS