Edgar Filing: ARCH CAPITAL GROUP LTD

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934

Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-12

ARCH CAPITAL GROUP LTD.
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(Name of Registrant as Specified in Its Charter)

Not Applicable
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[ARCH CAPITAL GROUP LTD. LETTERHEAD]

April 15, 2003

Dear Shareholder:

I am pleased to invite you to the annual general meeting of the
shareholders of Arch Capital Group Ltd. to be held on May 21, 2003, at 8:30 a.m.
(local time), at the Elbow Beach Hotel, 60 South Shore Road, Paget Parish PG04
Bermuda. The enclosed proxy statement provides you with detailed information
regarding the business to be considered at the meeting.

YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the meeting,
please sign the enclosed proxy card and mail it promptly in the enclosed
envelope.

Sincerely,

[signature logo]
Robert Clements
Chairman of the Board

ARCH CAPITAL GROUP LTD.

NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS

Notice is hereby given that the annual general meeting of the shareholders
of Arch Capital Group Ltd. will be held on May 21, 2003, at 8:30 a.m. (local
time), at the Elbow Beach Hotel, 60 South Shore Road, Paget Parish PG04 Bermuda,
for the following purposes:

- PROPOSAL 1: To re-elect four directors to serve for a term of three
years or until their respective successors are elected and qualified.

- PROPOSAL 2: To elect certain individuals as Designated Company
Directors of certain of our non-U.S. subsidiaries.

- PROPOSAL 3: To ratify the selection of PricewaterhouseCoopers LLP as
our independent accountants for the year ending December 31, 2003.

- PROPOSAL 4: To conduct other business if properly raised.

Only shareholders of record as of the close of business on April 11, 2003
may vote at the meeting.

Our audited financial statements for the year ended December 31, 2002, as
approved by our Board of Directors, will be presented at this annual general
meeting.

YOUR VOTE IS VERY IMPORTANT. PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR
PROXY CARD IN THE ENCLOSED ENVELOPE PROMPTLY.

THIS PROXY STATEMENT AND ACCOMPANYING FORM OF PROXY ARE DATED APRIL 15,
2003 AND ARE FIRST BEING MAILED TO SHAREHOLDERS ON OR ABOUT APRIL 17, 2003.

[signature logo]
Dawna Ferguson
Secretary

Hamilton, Bermuda
April 15, 2003

TABLE OF CONTENTS

Page
----

THE ANNUAL GENERAL MEETING.......................................................1
Time and Place..............................................................1
Record Date; Voting at the Annual General Meeting...........................1
Limitation on Voting Under Our Bye-Laws.....................................1
Quorum; Votes Required for Approval.........................................2
Voting and Revocation of Proxies............................................2
Solicitation of Proxies.....................................................2
Other Matters...............................................................3
Principal Executive Offices.................................................3

PROPOSAL 1 -- ELECTION OF DIRECTORS..............................................4
Nominees....................................................................4
Required Vote...............................................................5
Continuing Directors and Executive Officers.................................5
Board of Directors Composition..............................................8
Section 16(a) Beneficial Ownership Reporting Compliance.....................8
Board of Directors' Meetings and Committees.................................8
Report of the Audit Committee of the Board of Directors....................10
Compensation Committee Interlocks and Insider Participation................10
Summary Compensation Table.................................................11
Option Grants in Last Fiscal Year..........................................12
Aggregated 2002 Fiscal Year-End Option Values..............................13
Employment Arrangements....................................................13
Change in Control Arrangements.............................................18
Director Compensation......................................................18
Report of the Compensation Committee of the Board of Directors.............19
Performance Graph..........................................................22
Security Ownership of Certain Beneficial Owners and Management.............23
Certain Relationships and Related Transactions.............................29

PROPOSAL 2 -- ELECTION OF SUBSIDIARY DIRECTORS..................................30
Required Vote..............................................................32

PROPOSAL 3 -- RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS..............32
Principal Accountant Fees and Services.....................................32
Required Vote..............................................................33

-i-

THE ANNUAL GENERAL MEETING

WE ARE FURNISHING THIS PROXY STATEMENT TO HOLDERS OF OUR COMMON SHARES IN
CONNECTION WITH THE SOLICITATION OF PROXIES BY OUR BOARD OF DIRECTORS AT THE
ANNUAL GENERAL MEETING, AND AT ANY ADJOURNMENTS AND POSTPONEMENTS OF THE
MEETING.

TIME AND PLACE

The annual general meeting will be held at 8:30 a.m. (local time) on May
21, 2003 at the Elbow Beach Hotel, 60 South Shore Road, Paget Parish PG04
Bermuda.

RECORD DATE; VOTING AT THE ANNUAL GENERAL MEETING

Our Board of Directors has fixed the close of business on April 11, 2003 as
the record date for determination of the shareholders entitled to notice of and
to vote at the annual general meeting and any and all postponements or
adjournments of the meeting. On the record date, there were 27,978,256 common
shares outstanding and entitled to vote, subject to the limitations in our
bye-laws described below. At that date, there were an estimated 168 holders of
record and 5,000 beneficial holders of the common shares. On the record date,
there were 38,844,665 preference shares outstanding and entitled to vote,
subject to the limitations in the certificate of designations and our bye-laws
described below. There were 28 holders of record and beneficial holders of the
preference shares. Each holder of record of shares on the record date is
entitled to cast one vote per share, subject to the limitations described below.
A shareholder may vote in person or by a properly executed proxy on each
proposal put forth at the annual general meeting.

LIMITATION ON VOTING UNDER OUR BYE-LAWS

Under our bye-laws, if the votes conferred by shares of Arch Capital Group
Ltd. ("ACGL" or the "Company"), directly or indirectly or constructively owned
(within the meaning of section 958 of the Internal Revenue Code of 1986, as
amended (the "Code")) by any U.S. person (as defined in section 7701(a)(30) of
the Code) would otherwise represent more than 9.9% of the voting power of all
shares entitled to vote generally at an election of directors, the votes
conferred by such shares or such U.S. person will be reduced by whatever amount
is necessary so that after any such reduction the votes conferred by the shares
of such person will constitute 9.9% of the total voting power of all shares
entitled to vote generally at an election of directors.

There may be circumstances in which the votes conferred on a U.S. person
are reduced to less than 9.9% as a result of the operation of bye-law 45 because
of shares, including shares held by private equity investment funds affiliated
with Warburg Pincus LLC ("Warburg Pincus funds") and Hellman & Friedman LLC
("Hellman & Friedman funds"), that may be attributed to that person under the
Code.

Notwithstanding the provisions of our bye-laws described above, after
having applied such provisions as best as they consider reasonably practicable,
the Board may make such final adjustments to the aggregate number of votes
conferred by the shares of any U.S. person that they consider fair and
reasonable in all the circumstances to ensure that such votes represent 9.9% of
the aggregate voting power of the votes conferred by all shares of ACGL entitled
to vote generally at an election of directors.

In order to implement bye-law 45, we will assume that all shareholders
(other than the Warburg Pincus funds and the Hellman & Friedman funds) are U.S.
persons unless we receive assurances satisfactory to us that they are not U.S.
persons.

QUORUM; VOTES REQUIRED FOR APPROVAL

The presence of two or more persons representing, in person or by properly
executed proxy, not less than a majority of the voting power of our shares
outstanding and entitled to vote at the annual general meeting is necessary to
constitute a quorum. If a quorum is not present, the annual general meeting may
be adjourned from time to time until a quorum is obtained. The affirmative vote
of a majority of the voting power of the shares represented at the annual
general meeting will be required for approval of each of the proposals, except
that Proposal 1 will be determined by a plurality of the votes cast.

An automated system administered by our transfer agent will tabulate votes
cast by proxy at the annual general meeting, and our transfer agent will
tabulate votes cast in person. Abstentions and broker non-votes (i.e., shares
held by a broker which are represented at the meeting but with respect to which
such broker does not have discretionary authority to vote on a particular
proposal) will be counted for purposes of determining whether or not a quorum
exists.

Several of our officers and directors will be present at the annual general
meeting and available to respond to questions. Our independent accountants are
expected to be present at the annual general meeting, will have an opportunity
to make a statement if they desire to do so and are expected to be available to
respond to appropriate questions.

VOTING AND REVOCATION OF PROXIES

All shareholders should complete, sign and return the enclosed proxy card.
All shares represented at the annual general meeting by properly executed
proxies received before or at the annual general meeting, unless those proxies
have been revoked, will be voted at the annual general meeting, including any
postponement or adjournment of the annual general meeting. If no instructions
are indicated on a properly executed proxy, the proxies will be deemed to be FOR
approval of each of the proposals described in this proxy statement.

Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by either:

- filing, including by facsimile, with the Secretary of the Company,
before the vote at the annual general meeting is taken, a written
notice of revocation bearing a later date than the date of the proxy
or a later-dated proxy relating to the same shares, or

- attending the annual general meeting and voting in person.

In order to vote in person at the annual general meeting, shareholders must
attend the annual general meeting and cast their vote in accordance with the
voting procedures established for the annual general meeting. Attendance at the
annual general meeting will not in and of itself constitute a revocation of a
proxy. Any written notice of revocation or subsequent proxy must be sent so as
to be delivered at or before the taking of the vote at the annual general
meeting to Arch Capital Group Ltd., Wessex House, 3rd Floor, 45 Reid Street,
Hamilton HM 12 Bermuda, Facsimile: (441) 278-9255, Attention: Secretary.

SOLICITATION OF PROXIES

Proxies are being solicited by and on behalf of the Board of Directors. In
addition to the use of the mails, proxies may be solicited by personal
interview, telephone, telegram, facsimile and advertisement in periodicals and
postings, in each case by our directors, officers and employees.

We have retained MacKenzie Partners, Inc. to aid in the solicitation of
proxies and to verify records related to the solicitation. We will pay MacKenzie
Partners, Inc. fees of not more than $4,500 plus expense reimbursement for its
services. Brokerage houses, nominees, fiduciaries and other custodians will be
requested to forward solicitation materials to beneficial owners and will be
reimbursed for their reasonable expenses incurred in so doing. We

may request by telephone, facsimile, mail, electronic mail or other means of
communication the return of the proxy cards.

OTHER MATTERS

Our audited financial statements for the year ended December 31, 2002, as
approved by our Board of Directors, will be presented at this annual general
meeting.

As of the date of this proxy statement, our Board of Directors knows of no
matters that will be presented for consideration at the annual general meeting,
other than as described in this proxy statement. If any other matters shall
properly come before the annual general meeting or any adjournments or
postponements of the annual general meeting and shall be voted on, the enclosed
proxies will be deemed to confer discretionary authority on the individuals
named as proxies therein to vote the shares represented by such proxies as to
any of those matters. The persons named as proxies intend to vote or not vote in
accordance with the recommendation of our Board of Directors and management.

PRINCIPAL EXECUTIVE OFFICES

Our registered office is located at Clarendon House, 2 Church Street,
Hamilton HM 11 Bermuda (telephone number: (441) 295-1422), and our principal
executive offices are located at Wessex House, 3rd Floor, 45 Reid Street,
Hamilton HM 12 Bermuda (telephone number: (441) 278-9250).

PROPOSAL 1 -- ELECTION OF DIRECTORS

The Board of Directors of ACGL is currently comprised of 12 members,
divided into three classes, serving staggered three-year terms. The Board of
Directors intends to present for action at the annual general meeting the
election of Peter A. Appel, Constantine Iordanou, James J. Meenaghan and John M.
Pasquesi, whose present terms expire this year, to serve as Class II Directors
for a term of three years or until their successors are duly elected and
qualified. Such nominees were recommended for approval by the Board of Directors
by the nominating committee of the Board.

Unless authority to vote for these nominees is withheld, the enclosed proxy
will be voted for these nominees, except that the persons designated as proxies
reserve discretion to cast their votes for other persons in the unanticipated
event that any of these nominees is unable or declines to serve.

NOMINEES

Set forth below is information regarding the nominees for election:

NAME AGE POSITION
---- --- --------

Peter A. Appel.................. 41 President, Chief Executive Officer and Class II
Director of ACGL
Constantine Iordanou............ 53 President and Chief Executive Officer of Arch Capital
Group (U.S.) Inc. and Class II Director of ACGL
James J. Meenaghan.............. 64 Class II Director of ACGL
John M. Pasquesi................ 43 Executive Vice Chairman and Class II Director of ACGL

PETER A. APPEL has been president and chief executive officer of ACGL since
May 5, 2000 and a director of ACGL since November 1999. He was executive vice
president and chief operating officer of ACGL from November 1999 to May 5, 2000,
and general counsel and secretary of ACGL from November 1995 to May 5, 2000. Mr.
Appel previously served as a managing director of ACGL from November 1995 to
November 1999. From September 1987 to November 1995, Mr. Appel practiced law
with the New York firm of Willkie Farr & Gallagher, where he was a partner from
January 1995. Mr. Appel is currently a member of the board of overseers and a
member of the executive committee of the School of Risk Management, Insurance
and Actuarial Science of St. John's University. He holds an A.B. degree from
Colgate University and a law degree from Harvard University.

CONSTANTINE IORDANOU has served as a director of ACGL and as chief
executive officer of Arch Capital Group (U.S.) Inc. since January 1, 2002. From
March 1992 through December 2001, Mr. Iordanou served in various capacities for
Zurich Financial Services and its affiliates, including as senior executive vice
president of group operations and business development of Zurich Financial
Services, president of Zurich-American Specialties Division, chief operating
officer and chief executive officer of Zurich-American and chief executive
officer of Zurich North America. Prior to joining Zurich, he served as president
of the commercial casualty division of the Berkshire Hathaway Group and served
as senior vice president with the American Home Insurance Company, a member of
the American International Group. He holds an aerospace engineering degree from
New York University.

JAMES J. MEENAGHAN has been a director of the Company since October 2001.
From October 1986 to 1993, Mr. Meenaghan was chairman, president and chief
executive officer of Home Insurance Companies. He also served as President and
Chief Executive Officer of John F. Sullivan Co. from 1983 to 1986. Prior
thereto, Mr. Meenaghan held various positions over 20 years with the Fireman's
Fund Insurance Company, including President and Chief Operating Officer and Vice
Chairman of its parent company, American Express Insurance Services Inc. He
holds a B.S. degree from Fordham University.

JOHN M. PASQUESI has been our executive vice chairman and a director since
November 2001. Mr. Pasquesi has been the managing member of Otter Capital LLC, a
private equity investment firm founded by him in January 2001. Prior to January
2001, Mr. Pasquesi was a managing director of Hellman & Friedman LLC since 1988.
He holds an A.B. degree from Dartmouth College and an M.B.A. degree from
Stanford Graduate School of Business.

REQUIRED VOTE

A plurality of the votes cast at the annual general meeting will be
required to elect the above nominees as Class II Directors of ACGL.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF ALL
NOMINEES TO THE BOARD OF DIRECTORS.

CONTINUING DIRECTORS AND EXECUTIVE OFFICERS

The following individuals are our continuing directors:

TERM
NAME AGE POSITION EXPIRES*
---- --- -------- -------

Robert Clements.............. 70 Chairman and Class III Director of ACGL 2004
Paul B. Ingrey............... 63 Chairman and Chief Executive Officer of Arch
Reinsurance Ltd. and Class I Director of ACGL 2005
Wolfe "Bill" H. Bragin....... 58 Class III Director of ACGL 2004
John L. Bunce, Jr............ 44 Class III Director of ACGL 2004
Robert Glanville............. 36 Class III Director of ACGL 2004
Kewsong Lee ................. 37 Class I Director of ACGL 2005
David R. Tunnell............. 32 Class I Director of ACGL 2005
Robert F. Works.............. 55 Class I Director of ACGL 2005

----------
* Indicates expiration of term as a director of ACGL.

ROBERT CLEMENTS was elected chairman and director of ACGL at the time of
our formation in March 1995, and continues to serve in that capacity. From March
1996 to February 2001, he was an advisor to MMC Capital, with whom he served as
chairman and chief executive officer from January 1994 to March 1996. Prior
thereto, he served as president of Marsh & McLennan Companies, Inc. since 1992,
having been vice chairman during 1991. He was chairman of J&H Marsh & McLennan,
Incorporated (formerly Marsh & McLennan, Incorporated), a subsidiary of Marsh &
McLennan Companies, Inc., from 1988 until March 1992. He joined Marsh &
McLennan, Ltd., a Canadian subsidiary of Marsh & McLennan Companies, Inc., in
1959. Mr. Clements was a director of XL Capital from 1986 to 2002 and was
formerly a director of Annuity and Life Re (Holdings), Ltd. and Stockton
Reinsurance Limited and ACE Ltd. He is chairman emeritus of the Board of
overseers of the School of Risk Management, Insurance and Actuarial Science of
St. John's University and a member of Rand Corp. President's Council. He holds a
B.A. degree from Dartmouth College.

PAUL B. INGREY has served as a director of ACGL and as chief executive
officer of Arch Reinsurance Ltd. ("Arch Re (Bermuda)") since October 2001, and
was elected chairman of Arch Re (Bermuda) in March 2002. He was retired from
1996 to 2001. Mr. Ingrey was the founder of F&G Re Inc., a reinsurance
subsidiary of USF&G Corporation, and served as its chairman and chief executive
officer from 1983 to 1996. Prior to that, he was senior vice president of
Prudential Reinsurance, an underwriter of property and casualty reinsurance. He
has also served as a director of USF&G Corporation (until its sale to The St.
Paul Companies, Inc. in 1998) and E.W. Blanch Holdings, Inc., the holding
company for E.W. Blanch Co., which provides risk management and distribution
services through several subsidiaries (until its sale to Benfield Greig, the
London-based international reinsurance broker, in April 2001) and he was
formerly a director of Fairfax Financial Holdings Limited, an insurance and
reinsurance company with a focus on property and casualty insurance until
September 2002. He holds a B.A. degree from Colgate University and an M.B.A.
degree from the School of Risk Management, Insurance and Actuarial Science of
St. John's University (formerly the College of Insurance).

WOLFE "BILL" H. BRAGIN has served as a director of ACGL since May 2002. He
served as Vice President of GE Asset Management from 1985 until his retirement
in 2002. He also served as a Managing Director of GE Asset Management until
2002. Mr. Bragin had been employed by various affiliates of General Electric
Company since

1974, including GE Capital (formerly known as GE Credit Corporation),
specializing in equipment leasing and private investments, through 1984, and,
thereafter, GE Asset Management's Private Placement Group, specializing in
private equity investments. Mr. Bragin has previously served as a director of
both privately-held and publicly-traded companies. He holds a B.S. degree from
the University of Connecticut and an M.B.A. degree from Babson Institute of
Business Administration. Mr. Bragin was appointed to our Board of Directors
pursuant to our shareholders agreement (the "Shareholders Agreement"), which is
filed as an exhibit to our Annual Report on Form 10-K for the year ended
December 31, 2002 ("2002 Annual Report").

JOHN L. (JACK) BUNCE, Jr. has served as a director of ACGL since November
2001. Mr. Bunce is a managing director of Hellman & Friedman, which he joined in
1988. Before joining Hellman & Friedman, Mr. Bunce was vice president of TA
Associates. Previously, he was employed in the Mergers & Acquisitions and
Corporate Finance Departments of Lehman Brothers Kuhn Loeb. He is currently also
a director of Digitas, Inc., National Information Consortium, Inc., and Western
Wireless Corporation. He has also served as a director of Duhamel Falcon Cable
Mexico, Eller Media Company, Falcon Cable TV, National Radio Partners,
VoiceStream Wireless Corporation, and Young & Rubicam, Inc. Mr. Bunce also was
an advisor to American Capital Corporation and Post Oak Bank. He holds an A.B.
degree from Stanford University and an M.B.A. degree from Harvard Business
School. Mr. Bunce was appointed to our Board of Directors pursuant to our
Shareholders Agreement, which is filed as an exhibit to our 2002 Annual Report.

ROBERT GLANVILLE has served as a director of ACGL since May 2002. He has
been a Vice President of Warburg Pincus LLC since January 2000 and has been
employed by Warburg Pincus since January 1999. From April 1997 through December
1998, Mr. Glanville served as Chief Financial Officer of the APP Group (Prague,
Czech Republic), a Warburg Pincus portfolio company focused on information
technology and systems integration. He was founder and managing partner of F.A.
Services, LLC, a boutique financial advisory firm that raised capital for
businesses in Central and Eastern Europe, from 1993 to 1997, and was employed by
Morgan Stanley & Co from 1988 to 1992. He is a director of several
privately-held financial services companies. He holds a B.A. degree from
Princeton University. Mr. Glanville was appointed to our Board of Directors
pursuant to our Shareholders Agreement, which is filed as an exhibit to our 2002
Annual Report.

KEWSONG LEE has served as a director of ACGL since November 2001. Mr. Lee
has served as a member and managing director of Warburg Pincus LLC and a general
partner of Warburg Pincus & Co. since January 1997. He has been employed at
Warburg Pincus since 1992. Prior to joining Warburg Pincus, Mr. Lee was a
consultant at McKinsey & Company, Inc., a management consulting company, from
1990 to 1992. His present service as a director includes membership on the
Boards of Knoll, Inc., Eagle Family Foods, Inc. and several privately held
companies. He holds a B.A. degree from Harvard College and an M.B.A. degree from
Harvard Business School. Mr. Lee was appointed to our Board of Directors
pursuant to our Shareholders Agreement, which is filed as an exhibit to our 2002
Annual Report.

DAVID R. TUNNELL has been a director of ACGL since May 2002. He has served
as a managing director of Hellman & Friedman since 2003. Prior to joining
Hellman & Friedman in 1994, Mr. Tunnell was employed by Lazard Freres & Co. in
New York from 1992 to 1994. Mr. Tunnell currently serves as a director of
Blackbaud, Inc. and Eastern Sea Laem Chabang Terminal Co., Ltd. He holds an A.B.
degree from Harvard College and an M.B.A. degree from Harvard Business School.
Mr. Tunnell was appointed to our Board of Directors pursuant to our Shareholders
Agreement, which is filed as an exhibit to our 2002 Annual Report.

ROBERT F. WORKS has been a director of ACGL since June 1999. Mr. Works was
a managing director of Jones Lang LaSalle (previously LaSalle Partners) until he
retired on December 31, 2001. He joined Jones Lang LaSalle in 1981, where he has
served in various capacities, including manager of both the Property Management
and Investment Management teams of the Eastern Region of the United States. Mr.
Works was also manager for the Times Square Development Advisory and Chelsea
Piers Lease Advisory on behalf of New York State and the President of GCT
Ventures and the Revitalization of Grand Central Terminal for the Metropolitan
Transportation Authority until he retired on December 31, 2001. He holds a B.A.
degree from the College of William and Mary.

The following individuals are our executive officers and members of senior
management who do not serve as directors of ACGL.

NAME AGE POSITION
---- --- --------

John D. Vollaro............... 58 Executive Vice President, Chief Financial Officer and Treasurer of
ACGL

Dwight R. Evans............... 50 President of Arch Reinsurance Ltd.
Marc Grandisson............... 35 Senior Vice President, Chief Underwriting Officer and Chief
Actuary of Arch Reinsurance Ltd.
Mark D. Lyons................. 46 Executive Vice President and Chief Actuary of Arch Insurance Group
Inc.
John F. Rathgeber............. 48 Managing Director and Chief Operating Officer of Arch Reinsurance
Company
Louis T. Petrillo............. 37 President and General Counsel of Arch Capital Services Inc.

JOHN D. VOLLARO has been executive vice president and chief financial
officer of ACGL since January 2002 and treasurer of ACGL since May 2002. Prior
to joining us, Mr. Vollaro acted as an independent consultant in the insurance
industry since March 2000. Prior to March 2000, Mr. Vollaro was president and
chief operating officer of W.R. Berkley Corporation from January 1996 and a
director from September 1995 until March 2000. Mr. Vollaro was chief executive
officer of Signet Star Holdings, Inc., a joint venture between W.R. Berkley
Corporation and General Re Corporation, from July 1993 to December 1995. Mr.
Vollaro served as executive vice president of W.R. Berkley Corporation from 1991
until 1993, chief financial officer and treasurer of W.R. Berkley Corporation
from 1983 to 1993 and senior vice president of W.R. Berkley Corporation from
1983 to 1991. He holds a B.S. degree from Long Island University.

DWIGHT R. EVANS has served as president of Arch Re (Bermuda) since October
2001. From 1998 until October 2001, Mr. Evans was executive vice president of
St. Paul Re. From 1983 until 1998, Mr. Evans was employed as executive vice
president for F&G Re Inc. Prior to that, Mr. Evans served as assistant vice
president at Skandia Reinsurance Company and as a reinsurance underwriter at
Prudential Reinsurance Company (now Everest Re Company). He holds a B.A. degree
from Ohio University.

MARC GRANDISSON has served as senior vice president, chief underwriting
officer and chief actuary of Arch Re (Bermuda) since October 2001. From March
1999 until October 2001, Mr. Grandisson was employed as vice president and
actuary of the reinsurance division of Berkshire Hathaway. From July 1996 until
February 1999, Mr. Grandisson was employed as vice president-director of F&G Re
Inc. From July 1994 until July 1996, Mr. Grandisson was employed as an actuary
for F&G Re. Prior to that, Mr. Grandisson was employed as an actuarial assistant
of Tillinghast-Towers Perrin. Mr. Grandisson holds an M.B.A. degree from the
Wharton School of the University of Pennsylvania. He is also a fellow of the
Casualty Actuarial Society.

MARK D. LYONS has served as executive vice president of group operations
and chief actuary of Arch Insurance Group Inc. since August 2002. From 2001
until August 2002, Mr. Lyons worked as an independent consultant. From 1992 to
2001, Mr. Lyons was executive vice president of product services at Zurich U.S.
From 1987 until 1992, Mr. Lyons was a vice president and actuary at Berkshire
Hathaway Insurance Group. Mr. Lyons holds a B.S. degree from Elizabethtown
College. He is also an associate of the Casualty Actuarial Society and a member
of the American Academy of Actuaries.

JOHN F. RATHGEBER has served as managing director and chief operating
officer of Arch Reinsurance Company since December 2001. From 1998 until 2001,
Mr. Rathgeber was executive vice president of the financial solutions business
unit of St. Paul Re. From November 1992 until 1998, Mr. Rathgeber was employed
as a vice president in the non-traditional underwriting department at F&G Re,
and from 1996 until 1998, Mr. Rathgeber served as a senior vice president of
non-traditional reinsurance. Prior to joining F&G Re, Mr. Rathgeber was employed
by Prudential Re from 1980 until 1992. During that time, he held various
underwriting positions, and from 1988 until 1992, Mr. Rathgeber was a director
in the actuarial department. Mr. Rathgeber holds a B.A. from Williams College.
He is also a chartered property and casualty underwriter, a fellow of the
Casualty Actuarial Society and a member of the American Academy of Actuaries.

LOUIS T. PETRILLO has been president and general counsel of Arch Capital
Services Inc. since April 2002. From May 2000 to April 2002, he was senior vice
president, general counsel and secretary of ACGL. From 1996 until May 2000, Mr.
Petrillo was vice president and associate general counsel of ACGL's reinsurance
subsidiary. Prior to that time, Mr. Petrillo practiced law at the New York firm
of Willkie Farr & Gallagher. He holds a B.A. degree from Tufts University and a
law degree from Columbia University.

BOARD OF DIRECTORS COMPOSITION

Pursuant to the Shareholders Agreement entered into in connection with the
capital infusion in November 2001, we have agreed to restrictions on the
composition of our Board of Directors. Pursuant to this agreement, the Warburg
Pincus funds and the Hellman & Friedman funds are entitled to nominate a
prescribed number of directors based on the respective retained percentages of
their preference shares purchased in November 2001. Currently, our Board
consists of 12 members, including three directors nominated by the Warburg
Pincus funds and two directors nominated by the Hellman & Friedman funds. As
long as the Warburg Pincus funds retain at least 75% of their original
investment and Hellman & Friedman funds retain at least 60% of their original
investment, these shareholders together will be entitled to nominate a majority
of directors to our Board. Messrs. Bragin, Glanville and Lee are the designees
of the Warburg Pincus funds, and Messrs. Tunnell and Bunce are the designees of
the Hellman & Friedman funds. In addition, pursuant to our Shareholders
Agreement, the Warburg Pincus funds and the Hellman & Friedman funds have agreed
to take all acts to cause Mr. Clements to be duly elected as chairman of our
Board of Directors for so long as he is willing and able to serve in such
capacity.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires our directors and executive officers, and persons who
own more than 10% of our common shares, to file with the Securities and Exchange
Commission ("SEC") initial reports of beneficial ownership and reports of
changes in beneficial ownership of our common shares. Such persons are also
required by SEC regulation to furnish us with copies of all Section 16(a)
reports they file. To our knowledge, based solely on a review of the copies of
such reports furnished to us and representations that no other reports were
required, we believe that all persons subject to the reporting requirements of
Section 16(a) filed the required reports on a timely basis during the year ended
December 31, 2002, except for one Form 4 filed on behalf of Mr. Clements that
was filed late which reflected dispositions of common shares held directly by
Mr. Clements to a grantor retained annuity trust established for the benefit of
his children.

BOARD OF DIRECTORS' MEETINGS AND COMMITTEES

The Board of Directors met four times during 2002. The Board of Directors
has established standing audit, compensation, executive, finance and investment
and nominating committees. Each director attended 75% or more of all meetings of
the Board and any committees on which the director served during fiscal year
2002. As long as at least one representative of the Warburg Pincus funds is on
the Board of Directors, each board committee will include at least one
representative of the Warburg Pincus funds, and as long as at least one
representative of the Hellman & Friedman funds is on the Board, each board
committee will include at least one representative of the Hellman & Friedman
funds. The foregoing is subject to 4350(d)(2) of the rules of the National
Association of Securities Dealers Inc. (the "NASD"), which requires three
independent directors on the audit committee.

AUDIT COMMITTEE

The audit committee of the Board of Directors assists the Board in
overseeing management and the independent accountants in fulfilling their
responsibilities in the financial reporting process of ACGL. The audit committee
reviews with management and the independent accountants the proposed overall
scope of ACGL's annual audit, the adequacy and integrity of ACGL's system of
internal controls, and our audited financial statements and related disclosures.
Each year, the audit committee recommends to the Board an independent accountant
to audit the financial statements of ACGL. Our Board of Directors has adopted a
written charter for the audit committee. The audit committee currently consists
of James J. Meenaghan (chairman), Kewsong Lee and Robert F. Works. The Board
determined to appoint Mr. Lee, who serves on the Board as a representative of
the Warburg Pincus funds under the

Shareholders Agreement entered into in connection with the capital infusion, to
the audit committee. 4350(d)(2)(B) of the rules of the NASD provides that one
director who is not independent as defined in Rule 4200 and is not a current
employee or an immediate family member of such employee, may be appointed to the
audit committee, if the board determines that membership on the committee by the
individual is required by the best interests of the corporation and its
shareholders. The Board viewed the interests of the Warburg Pincus funds with
respect to the purposes and function of the audit committee as generally aligned
with those of the other shareholders of ACGL. The Board noted that purchase
price adjustments under the subscription agreement with the investors
("Subscription Agreement"), which is filed as an exhibit to our 2002 Annual
Report, are subject to the approval of the transaction committee of the Board,
as described below. In view of the foregoing, the Board determined that
exceptional and limited circumstances exist to warrant the appointment of Mr.
Lee to the audit committee. The audit committee met four times during 2002.

COMPENSATION COMMITTEE

The compensation committee of the Board of Directors approves the
compensation of our senior executives, reviews the general compensation policies
and practices followed by us and our subsidiaries and administers our benefit
plans. The compensation committee is required to report to the Board of
Directors at least annually and whenever the Board may require. The compensation
committee currently consists of John L. Bunce, Jr. (chairman), Kewsong Lee,
James J. Meenaghan and Robert F. Works. The compensation committee met three
times during 2002.

EXECUTIVE COMMITTEE

The executive committee of the Board of Directors may generally exercise
all the powers and authority of the Board of Directors, when it is not in
session, in the management of our business and affairs, unless the Board of
Directors otherwise determines. The executive committee reports periodically to
the Board of Directors as to actions it has taken. The executive committee
currently consists of Robert Clements (chairman), John L. Bunce, Jr. and Kewsong
Lee. The executive committee did not meet during 2002.

FINANCE AND INVESTMENT COMMITTEE

The finance and investment committee of the Board of Directors establishes
and recommends the ACGL's investment policies and reviews ACGL's capital
management practices and overall investment policy performance. The finance and
investment committee currently consists of John M. Pasquesi (chairman), Peter A.
Appel, John L. Bunce, Jr. and Kewsong Lee. The finance and investment committee
met three times during 2002.

NOMINATING COMMITTEE

The nominating committee of the Board of Directors is responsible for
recommending to the Board candidates for nomination to the Board. The nominating
committee will consider nominations for directors from shareholders to the
extent the nominations are made in accordance with our bye-laws, as described
under "Shareholder Proposals for the 2004 Annual General Meeting." The
nominating committee consists of the non-employee members of our Board of
Directors, including Robert Clements (chairman), Wolfe "Bill" H. Bragin, John L.
Bunce, Jr., Robert Glanville, Kewsong Lee, James J. Meenaghan, David R. Tunnell
and Robert F. Works. The nominating committee met two times during 2002.

TRANSACTION COMMITTEE

The transaction committee of the Board of Directors was formed under the
Subscription Agreement entered into in connection with the capital infusion in
November 2001. Until the date of the final determination of the purchase price
adjustment at the fourth anniversary of closing of the capital infusion (i.e.,
November 20, 2005), approval of the following actions by the transaction
committee is deemed to be approval by the entire Board:

- an amendment, modification or waiver of rights by ACGL under the
agreements relating to the capital infusion, including the
Subscription Agreement, the certificate of designations for the
preference shares or the Shareholders Agreement;

- the enforcement of obligations of the investors under the above
agreements; or

- approval of actions relating to the disposition of non-core assets.

The transaction committee consists of persons who either (1) were members
of our Board of Directors on October 22, 2001 and/or (2) were designated as
members of the transaction committee by a person who was a member of our Board
on October 22, 2001. The transaction committee currently consists of Robert
Clements, Peter A. Appel, James J. Meenaghan and Robert F. Works. The
transaction committee met one time during 2002.

REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

The primary purpose of the audit committee of our Board of Directors is to
assist the Board in overseeing management and the independent accountants in
fulfilling their responsibilities in the financial reporting process of ACGL. It
is not the responsibility of the audit committee to plan or conduct audits or to
determine that ACGL's financial statements are in all material respects complete
and accurate and in accordance with generally accepted accounting principles.
This is the responsibility of management and the independent accountants. It is
also not the responsibility of the audit committee to assure compliance with
laws and regulations or with any codes or standards of conduct or related
policies adopted by ACGL from time to time which seek to ensure that the
business of ACGL is conducted in an ethical and legal manner.

The audit committee has reviewed and discussed the consolidated financial
statements of ACGL and its subsidiaries set forth in Item 8 of our 2002 Annual
Report with management of ACGL and PricewaterhouseCoopers LLP, independent
accountants for ACGL.

The audit committee has discussed with PricewaterhouseCoopers LLP the
matters required to be discussed by Statement on Auditing Standards No. 61,
"Communication with Audit Committees," as amended, which includes, among other
items, matters relating to the conduct of an audit of ACGL's financial
statements.

The audit committee has received the written confirmation from
PricewaterhouseCoopers LLP required by Independence Standards Board Standard No.
1 and has discussed with PricewaterhouseCoopers LLP their independence from
ACGL.

Based on the review and discussions with management of ACGL and
PricewaterhouseCoopers LLP referred to above and other matters the audit
committee deemed relevant and appropriate, the audit committee has recommended
to the Board of Directors that ACGL publish the consolidated financial
statements of ACGL and subsidiaries for the year ended December 31, 2002 in our
2002 Annual Report.

AUDIT COMMITTEE
JAMES J. MEENAGHAN (CHAIRMAN)
KEWSONG LEE
ROBERT F. WORKS

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The compensation committee of our Board of Directors currently consists of
John L. Bunce, Jr. (chairman), Kewsong Lee, James Meenaghan and Robert Works.
None of the members of the committee are or have been officers or employees of
the Company. In addition, no executive officer of the Company served on any
Board of Directors or compensation committee of any entity (other than ACGL)
with which any member of our Board serves as an executive officer.

SUMMARY COMPENSATION TABLE

The following table sets forth information regarding compensation paid to
our executive officers for services rendered during fiscal years 2002, 2001 and
2000.

LONG TERM COMPENSATION
-------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------------- ------------------------ ----------
RESTRICTED
OTHER ANNUAL SHARE SECURITIES
COMPENSATION AWARD(s) UNDERLYING LTIP
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(2) ($)(3) OPTIONS (#) PAYOUTS ($)
------------------------------ ---- --------- --------- ------------ ---------- ------------ -----------

Peter A. Appel................ 2002 500,000 625,000(1) -- -- -- --
President, Chief Executive 2001 375,000 -- -- 750,000 422,407 --
Officer and Class II Director 2000 375,000 500,000 -- 756,250 100,000 --
of ACGL

Paul B. Ingrey................ 2002 750,000 1,000,000 50,653 -- -- --
Chairman and Chief 2001 143,200 -- -- 7,366,778 422,407 --
Executive Officer of Arch
Re (Bermuda) and Class I
Director of ACGL(6)

Constantine Iordanou.......... 2002 1,000,000 1,250,000(1) -- 11,108,112 425,000 --
President and Chief
Executive Officer of
Arch Capital Group (U.S.) Inc.
and Class II Director of
ACGL

Dwight R. Evans............... 2002 500,000 540,000(1)(7) 231,941 -- 25,000 --
President of Arch Re 2001 95,500 -- -- 872,000 100,000 --
(Bermuda)(6)

John D. Vollaro............... 2002 380,513 520,000(1) 83,825 -- 85,000 --
Executive Vice President,
Chief Financial Officer and
Treasurer of ACGL(6)

ALL OTHER
COMPENSATION
NAME AND PRINCIPAL POSITION ($)(4)
------------------------------ ------------

Peter A. Appel................ 68,295
President, Chief Executive 50,841
Officer and Class II Director 49,711(5)
of ACGL

Paul B. Ingrey................ 87,693
Chairman and Chief --
Executive Officer of Arch
Re (Bermuda) and Class I
Director of ACGL(6)

Constantine Iordanou.......... 105,247
President and Chief
Executive Officer of
Arch Capital Group (U.S.) Inc.
and Class II Director of
ACGL

Dwight R. Evans............... 59,880
President of Arch Re --
(Bermuda)(6)

John D. Vollaro............... 46,906
Executive Vice President,
Chief Financial Officer and
Treasurer of ACGL(6)

----------

(1) A portion of the 2002 performance bonus for each of Messrs. Appel,
Iordanou, Evans and Vollaro was paid in the form of restricted common
shares or restricted common share units as follows: (a) Mr.
Appel--$375,000 in cash and $250,000 in restricted common shares; (b)
Mr. Iordanou--$750,000 in cash and $500,000 in restricted common share
units; (c) Mr. Evans--$405,000 in cash and $135,000 in restricted common
shares; and (d) Mr. Vollaro--$312,000 in cash and $208,000 in restricted
common shares. In each case, subject to the terms of the applicable
award agreements, the restricted shares or restricted share units, as
applicable, will vest in four equal annual installments on February 20,
2003, 2004, 2005 and 2006. The restricted share units granted to Mr.
Iordanou will be settled in common shares of ACGL upon the termination
of Mr. Iordanou's employment.

(2) Other annual compensation for 2002 includes the following items relating
to employment arrangements in Bermuda: (a) tax reimbursements of $28,382
and housing expenses of $19,934 for Mr. Ingrey; (b) housing expenses of
$156,346 for Mr. Evans; and (c) housing expenses of $52,322 and tax
reimbursements of $31,503 for Mr. Vollaro.

(3) The value of each restricted share award is based upon the closing price
of the common shares as reported on the NASDAQ National Market as of the
grant date of such award. As of December 31, 2002, an aggregate of
847,407 unvested restricted common shares, with an aggregate value of
$26,413,676, were held by the named executive officers as follows: (a)
Mr. Ingrey--422,407 shares, with a value of $13,166,426, which shares
will vest on October 23, 2004; (b) Mr. Iordanou--325,000 shares, with a
value of $10,130,250, which shares will vest on December 31, 2006; (c)
Mr. Evans--50,000 shares, with a value of $1,558,500, which shares will
vest on October 23, 2004; and (d) Mr. Vollaro--50,000 shares, with a
value of $1,558,500, which shares will vest on January 18, 2007. During
the vesting period, cash dividends (if any) would be paid on outstanding
shares

of restricted stock. Stock dividends issued with respect to such shares
(if any) would be subject to the same restrictions and other terms and
conditions that apply to restricted shares with respect to which such
dividends are issued.

(4) Includes: (1) matching contributions under an employee 401(k) plan in
the amounts of (A) $8,500, $7,650 and $6,310 to Mr. Appel for 2002, 2001
and 2000, respectively; (B) $8,500 to Mr. Ingrey for 2002; (C) $8,500 to
Mr. Iordanou for 2002; (D) $8,500 to Mr. Evans for 2002; and (E) $8,500
to Mr. Vollaro for 2002; (2) pension contributions under a money
purchase pension plan in the amounts of (A) $15,755, $12,980 and $13,190
to Mr. Appel for 2002, 2001 and 2000, respectively; (B) $15,755 to Mr.
Ingrey for 2002; (C) $15,755 to Mr. Iordanou for 2002; (D) $15,755 to
Mr. Evans for 2002; and (E) $15,755 to Mr. Vollaro for 2002; (3)
contributions under an executive supplemental non-qualified savings and
retirement plan in the amounts of (A) $43,500, $29,725 and $29,725 to
Mr. Appel for 2002, 2001 and 2000, respectively; (B) $63,438 to Mr.
Ingrey for 2002; (C) $79,750 to Mr. Iordanou for 2002; (D)$35,625 to Mr.
Evans for 2002; and (E) $22,651 to Mr. Vollaro for 2002; and (4) term
life insurance premiums in the amounts of (A) $540, $486 and $486 to Mr.
Appel for 2002, 2001 and 2000, respectively; and (B) $1,242 to Mr.
Iordanou for 2002.

(5) See "--Change in Control Arrangements" for a description of certain
payments made upon the closing of the sale of our prior reinsurance
operations in May 2000.

(6) Mr. Evans was appointed president of Arch Re (Bermuda), and Mr. Ingrey
was appointed to the Board of Directors of ACGL and as chief executive
officer of Arch Re (Bermuda) on October 23, 2001. Mr. Vollaro was
appointed executive vice president and chief financial officer of ACGL
on January 18, 2002. See "--Employment Arrangements" below for a
description of their respective employment arrangements.

(7) Under our incentive compensation plan, a bonus pool for 2002
underwriting year performance has been established for Mr. Evans and
other officers who are part of our reinsurance operations (other than
Mr. Ingrey). Under the plan, the 2002 underwriting year bonus pool will
be recalculated annually, and any resultant payments will be made to Mr.
Evans over a 10-year development period.

The following table provides information regarding grants of stock options
made during fiscal year 2002 to each of the named executive officers.

OPTION GRANTS IN LAST FISCAL YEAR

POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(3)
----------------------------------------------------- -----------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE OR
GRANTED FISCAL BASE PRICE EXPIRATION
NAME (#)(1) YEAR(2) ($/Sh) DATE 5% 10%
------------------------------------ ---------- ------------ ----------- ---------- ----------- ------------

Peter A. Appel..................... -- -- -- -- -- --
Paul B. Ingrey..................... -- -- -- -- -- --
Constantine Iordanou............... 425,000 27.00% 23.50 01/01/12 $ 7,838,416 $ 18,397,769
Dwight R. Evans.................... 25,000 1.59% 27.10 06/27/12 426,076 1,079,761
John D. Vollaro.................... 85,000 5.40% 25.30 01/18/12 1,352,438 3,427,343

----------
(1) The terms for the options, including vesting schedules, are described
below under the caption "--Employment Arrangements."

(2) Pursuant to applicable SEC rules, percentages listed are based on
options to purchase a total of 1,573,900 shares granted to employees
during fiscal year 2002.

(3) Potential realizable value is calculated based on an assumption that the
fair market value of our common shares appreciates at the annual rates
shown (5% and 10%), compounded annually, from the date of grant until
the end of the option term. The 5% and 10% assumed rates are mandated by
the SEC for purposes of calculating realizable value and do not
represent our estimates or projections of future share prices.

The following table provides information regarding the number and value of
options held by each of our named executive officers as of December 31, 2002. No
options were exercised by any executive officer during 2002.

AGGREGATED 2002 FISCAL YEAR-END OPTION VALUES

NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT MONEY OPTIONS AT
DECEMBER 31, 2002 DECEMBER 31, 2002(1)
-------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------------------------ ----------- ------------- ----------- -------------

Peter A. Appel.......................... 688,207 -- $ 7,974,943 --
Paul B. Ingrey.......................... 281,604 140,803 3,145,517 $ 1,572,770
Constantine Iordanou.................... 141,667 283,333 1,086,586 2,173,164
Dwight R. Evans......................... 75,000 50,000 778,575 440,170
John D. Vollaro......................... 28,334 56,666 166,321 332,629

----------
(1) For purposes of the above table, options are "in-the-money" if the
market price of the common shares on December 31, 2002 (i.e., $31.17)
exceeded the exercise price of such options. The value of such options
is calculated by determining the difference between the aggregate market
price of the common shares subject to the options on December 31, 2002
and the aggregate exercise price of such options.

EMPLOYMENT ARRANGEMENTS

Set forth below is a summary of the material terms of the employment
arrangements with each of the named executive officers.

PETER A. APPEL

Mr. Appel, our president and chief executive officer, currently receives an
annual base salary of $525,000, which salary is subject to review annually for
increase at the discretion of the Board of Directors. He is eligible to receive
an annual cash bonus and share-based awards at the discretion of the Board and
to participate in our employee benefit programs. The company or Mr. Appel may
terminate his employment at any time. In connection with the November 2001
capital infusion, Mr. Appel was granted options to purchase a total of 422,407
common shares at an exercise price of $20.00 per share, which options expire on
October 23, 2011. Of these options, 50,000 vested and became exercisable upon
grant; 172,407 vested and became exercisable on December 16, 2002; and 200,000
vested on October 23, 2002 and became exercisable on December 16, 2002. If Mr.
Appel's service as chief executive officer terminates for any reason, all of
such options granted to Mr. Appel will continue to be exercisable for the
remainder of the option period. In addition, Mr. Appel has agreed that during
the term of his employment and, in the event his service with us is terminated
for any reason, for a period ending two years after his termination, (1) he will
not compete with any of our subsidiaries' insurance or reinsurance businesses as
they exist on the date of his termination and (2) he will not induce or attempt
to induce any of our employees to leave his or her position with us. See
"--Summary Compensation Table" and "--Report of Compensation Committee of the
Board of Directors--CEO Compensation" for additional compensation information
relating to Mr. Appel, including his bonus for 2002 performance.

PAUL B. INGREY

Mr. Ingrey serves on our Board of Directors and as chairman and chief
executive officer of Arch Re (Bermuda). His employment agreement currently
provides for an annual base salary of $750,000. The annual base salary is
subject to review annually for increase at the discretion of the Board. The
target rate for the annual cash bonus is 100% of the annual base salary. Mr.
Ingrey is eligible to receive annual cash bonuses and share-based awards at the
discretion of our Board and to participate in our employee benefit programs. The
initial term of his employment agreement ends on October 23, 2004, but we or Mr.
Ingrey may terminate his employment at any time. The agreement will be
automatically extended for additional one-year periods, unless we or Mr. Ingrey
gives notice at least 60 days prior to the expiration of the original term or
any extended term. The agreement provides that if the employment of Mr. Ingrey
is terminated without cause or for good reason before October 23, 2004, he will
be entitled to receive an amount equal to his annual base salary.

Mr. Ingrey agreed that, during the employment period and for the period of
two years after termination of employment, he will not compete with the
businesses of ACGL or any of its subsidiaries as such businesses exist or are in
process or being planned as of the date of termination. The non-competition
period will be one year following termination if we terminate his employment
without cause, he terminates for good reason or he gives notice of his intent
not to extend his employment term in accordance with the employment agreement.
In such case, we may extend the non-competition period to up to an additional
six months following this one-year period if we pay his base salary for such
additional six-month period. Mr. Ingrey also agreed that he will not, for a
period of two years following termination, induce or attempt to induce any of
our employees to leave his or her position with us or induce any customer to
cease doing business with us.

On October 23, 2001, as inducements essential to his entering into an
employment agreement, we granted Mr. Ingrey 422,407 restricted shares and
options to purchase 422,407 common shares under our incentive plan. The options
are exercisable at $20.00 per share and expire on October 23, 2011. For Mr.
Ingrey, one-third of his options vested and became exercisable at the closing of
the capital infusion, one-third became exercisable on October 23, 2002 and the
remaining one-third will become exercisable on October 23, 2003. In the event
that Mr. Ingrey's employment terminates due to his death or permanent
disability, all of his options will immediately vest and become exercisable. In
the event that Mr. Ingrey is terminated for cause, all of his options will cease
to be exercisable and will be immediately forfeited. In the event that we
terminate his employment other than for cause or he resigns for good reason, Mr.
Ingrey's options will vest according to the schedule in the preceding paragraph
and have a remaining term of three years following termination. In the event of
termination for any other reason, all vested options held by Mr. Ingrey will
remain exercisable for a period of 90 days from termination. To the extent that
any of Mr. Ingrey's options have not vested at the time of his termination, the
options will be forfeited.

Mr. Ingrey's restricted shares will vest on October 23, 2004. In the event
that Mr. Ingrey's employment terminates due to his death or permanent disability
or his employment is terminated by us without cause or he resigns for good
reason, all of his restricted shares will immediately vest. In the event that
Mr. Ingrey's employment is terminated by us without cause or he resigns for good
reason, his restricted shares will become fully transferable pursuant to the
normal vesting schedule (except that, following such termination, he may sell an
amount of shares to fund any income and employment taxes relating to the award).
In the event of termination for any other reason, all restricted shares held by
Mr. Ingrey will be forfeited.

See "--Summary Compensation Table" for additional compensation information
relating to Mr. Ingrey, including his bonus for 2002 performance.

CONSTANTINE IORDANOU

In January 2002, Mr. Iordanou was appointed to our Board of Directors and
as chief executive officer of Arch Capital Group (U.S.) Inc. As chief executive
officer of Arch Capital Group (U.S.) Inc., Mr. Iordanou is responsible for the
general management and oversight of the U.S. insurance operations of Arch
Capital Group (U.S.) Inc. and its affiliates. His employment agreement currently
provides for an annual base salary of $1,000,000, which is subject to review
annually for increase at the discretion of the Board. Mr. Iordanou is eligible
to participate in an

annual bonus plan on terms established from time to time and to participate in
our employee benefit programs. The target rate for the annual cash bonus is 100%
of his annual base salary. The initial term of Mr. Iordanou's employment
agreement ends on January 1, 2007, but we or Mr. Iordanou may terminate his
employment at any time. The agreement provides that it will be automatically
extended for successive one-year periods after the initial five-year term unless
either we or Mr. Iordanou gives at least 12 months notice of the intention not
to renew.

The agreement provides that if Mr. Iordanou's employment is terminated by
his death, he will receive a prorated portion of his bonus that would have been
paid for the year of his death and an amount equal to two times the sum of his
base salary and target annual bonus payable in a lump sum. His agreement also
provides that if his employment is terminated due to his permanent disability,
he will receive a prorated portion of his bonus that would have been paid for
the year in which he becomes disabled, as determined by the Board, and an amount
equal to 40% of his base salary payable in monthly installments during the
period of his disability extending through the time period provided for in the
Company's disability plan. The agreement further provides that if we terminate
Mr. Iordanou's employment without cause or he resigns for good reason, he will
receive a prorated portion of his bonus that would have been paid for the year
of his termination and an amount equal to two times the sum of his base salary
and target annual bonus payable over an 18-month period in equal monthly
installments. Mr. Iordanou's major medical insurance coverage benefits pursuant
to his employment agreement shall continue for 18 months after the date of
termination in the event that (1) his employment ends due to death or permanent
disability, (2) he is terminated other than for cause or (3) he resigns for good
reason (or until such time as he has major medical insurance coverage under the
plan of another employer). The agreement also provides that if Mr. Iordanou's
employment is terminated by the Company for cause or he resigns other than for
good reason, he will receive his base salary through the date of termination.

Mr. Iordanou has agreed that, during the employment period and for the
period of 18 months after termination of employment, he will not compete with
the businesses of ACGL or any of its subsidiaries as such businesses exist or
are in process or being planned as of the date of termination. If we terminate
Mr. Iordanou's employment without cause or he terminates for good reason, the
term of his non-competition period will extend only as long as he is receiving
benefits under the company's major medical insurance coverage. Further, Mr.
Iordanou has agreed to extend the non-competition period for a period of 18
months in the event of termination due to the expiration of the five-year term
of his agreement if he is paid an amount equal to two times his base salary and
annual target bonus (payable in equal monthly installments over that period) and
he remains covered by the company's major medical insurance plan. Mr. Iordanou
also agreed that he will not, for an 18-month period following his date of
termination, induce or attempt to induce any of our employees to leave his or
her position with us or induce any customer to cease doing business with us.

As inducements essential to his entering into his employment agreement, as
of January 1, 2002, we granted Mr. Iordanou, under our incentive plan, 106,383
restricted shares as a signing bonus, 325,000 additional restricted shares and
options to purchase 425,000 common shares at an exercise price equal to $23.50
per share.

Mr. Iordanou's options expire on January 1, 2012. One-third of his options
vested and became exercisable on the date of grant; one-third became exercisable
on January 1, 2003; and the remaining one-third will become exercisable on
January 1, 2004. In the event that his employment terminates due to his death or
permanent disability, all of Mr. Iordanou's options will immediately vest and
become exercisable. In the event that Mr. Iordanou is terminated for cause, all
of his options will cease to be exercisable and will be immediately forfeited.
In the event that we terminate his employment other than for cause or he resigns
for good reason, Mr. Iordanou's options will vest according to the schedule
described above and have a remaining term of three years following termination.
In the event of termination for any other reason, all vested options held by Mr.
Iordanou will remain exercisable for a period of 90 days from termination. To
the extent that any of Mr. Iordanou's options have not vested at the time of his
termination, the options will be forfeited.

The restricted shares Mr. Iordanou received as a signing bonus vested on
December 31, 2002, and the remaining 325,000 of his restricted shares will vest
on December 31, 2006. In the event that his employment terminates due to his
death or permanent disability or his employment is terminated by the company
without cause or he resigns for good reason, all of such 325,000 restricted
shares will immediately vest. In the case of termination by the company without
cause or resignation for good reason, however, such newly vested shares may not
be transferred

until December 31, 2006 (except that, following such termination, he may sell an
amount of shares to fund any income and employment taxes relating to the award).
In the event of termination for any other reason, all restricted shares held by
Mr. Iordanou will be forfeited.

See "--Summary Compensation Table" for additional compensation information
relating to Mr. Iordanou, including his bonus for 2002 performance.

DWIGHT R. EVANS

Mr. Evans serves as president of Arch Re (Bermuda). His employment
agreement currently provides for an annual base salary of $600,000. The annual
base salary is subject to review annually for increase at the discretion of the
Board. The target rate for the annual cash bonus is 100% of the annual base
salary. Mr. Evans is eligible to receive annual cash bonuses and share-based
awards at the discretion of our Board and to participate in our employee benefit
programs. The initial term of his employment agreement ends on October 23, 2004,
but we or Mr. Evans may terminate his employment at any time. The agreement will
be automatically extended for additional one-year periods, unless we or Mr.
Evans gives notice at least 60 days prior to the expiration of the original term
or any extended term. The agreement provides that if the employment of Mr. Evans
is terminated without cause or for good reason before October 23, 2004, he will
be entitled to receive an amount equal to his annual base salary.

Mr. Evans agreed that, during the employment period and for the period of
two years after termination of employment, he will not compete with the
businesses of ACGL or any of its subsidiaries as such businesses exist or are in
process or being planned as of the date of termination. The non-competition
period will be one year following termination if we terminate his employment
without cause, he terminates for good reason or he gives notice of his intent
not to extend his employment term in accordance with the employment agreement.
In such case, we may extend the non-competition period to up to an additional
six months following this one-year period if we pay his base salary for the
additional six-month period. Mr. Evans also agreed that he will not, for a
period of two years following termination, induce or attempt to induce any of
our employees to leave his or her position with us or induce any customer to
cease doing business with us.

On October 23, 2001, as inducements essential to his entering into
employment agreements, we granted Mr. Evans 50,000 restricted shares and options
to purchase 100,000 common shares under our incentive plan. The options are
exercisable at $20.00 per share and expire on October 23, 2011. For Mr. Evans,
one-third of his options vested and became exercisable at the closing of the
capital infusion, one-third became exercisable on October 23, 2002 and the
remaining one-third will become exercisable on October 23, 2003. If we terminate
Mr. Evans without cause, his options will remain exercisable (to the extent then
exercisable) for 90 days following termination of employment (but not beyond the
term of the option). In the event that Mr. Evans ceases to be an employee due to
death or permanent disability, all of his options will vest in full and remain
exercisable for the remainder of the term of the option.

Mr. Evans' restricted shares will vest on October 23, 2004. If Mr. Evans is
terminated due to his death or permanent disability, the restricted shares
granted to him will vest based upon the following schedule:

VESTED AMOUNT
UPON
DATE OF TERMINATION TERMINATION
------------------- -------------

Prior to first anniversary of grant date.................................. 1/3 of shares
Prior to second anniversary of grant date, but after first anniversary
of grant date.......................................................... 2/3 of shares
After second anniversary of grant date.................................... All shares

Any unvested shares held by Mr. Evans will be forfeited if he otherwise
terminates his service with us. Further, in the event that Mr. Evans is
terminated within two years after a change of control without cause or due to
permanent disability or he terminates his employment for good reason, all of his
restricted shares will vest immediately upon such termination.

See "--Summary Compensation Table" and "--Option Grants in Last Fiscal
Year" for additional compensation information relating to Mr. Evans, including
his bonus for 2002 performance and an additional grant of 25,000 stock options
made to him in June 2002.

JOHN D. VOLLARO

Mr. Vollaro has been appointed as our executive vice president, chief
financial officer and treasurer. Mr. Vollaro's employment agreement currently
provides for an annual base salary of $450,000. Mr. Vollaro is eligible to
participate in an annual bonus plan on terms established from time to time by
our Board and to participate in our employee benefit programs. The target rate
for the annual bonus is 100% of his annual base salary. The term of his
employment agreement ends on January 18, 2005, but we or Mr. Vollaro may
terminate his employment at any time. The agreement provides that it will be
automatically extended for successive one-year periods after the initial
three-year term unless either we or Mr. Vollaro gives at least 60 days notice of
the intention not to renew.

The agreement provides that if Mr. Vollaro's employment is terminated
without cause or for good reason before January 18, 2005, he will be entitled to
receive an amount equal to the greater of (1) 18 months of his base salary and
(2) the total remaining base salary which would have been paid for the remainder
of his employment term (payable in equal monthly installments commencing on the
first month anniversary of the date of termination). The agreement also provides
that if Mr. Vollaro's employment is terminated for cause, as a result of his
resignation or leaving employment other than for good reason, as a result of
death or permanent disability, or by written notice of the intention not to
renew the agreement by us or Mr. Vollaro, he will be entitled to receive solely
his base salary through the date of termination. The agreement further provides
that if Mr. Vollaro's employment is terminated by reason of death or permanent
disability, he will also be entitled to receive his annual bonus prorated
through the date of termination, provided that such bonus will not be less than
the average annual bonus received for the preceding three years; and, if he has
not received bonuses for three years, he will receive a prorated portion of the
average of the bonuses received, if any, but not less than a prorated portion of
90% of his base salary.

Mr. Vollaro has agreed that, during the employment period and for a period
of two years after termination of employment for cause or as a result of his
resignation or leaving employment other than for good reason, he will not
compete with the businesses of ACGL or any of its subsidiaries as such
businesses exist or are in process or being planned as of the date of
termination. If we terminate Mr. Vollaro's employment without cause or he
terminates for good reason, the term of his non-competition period will extend
only as long as he is receiving his severance payments and benefits under our
major medical insurance coverage. Further, Mr. Vollaro has agreed to a
non-competition period of two years if his termination results from notice of
the intent not to renew the agreement by us or Mr. Vollaro, and we agree in
writing to pay him the sum of his annual base salary and target annual bonus for
such period, payable in monthly installments over such period. Mr. Vollaro also
agreed that he will not, for a period of two years following his date of
termination, induce or attempt to induce any of our employees to leave his or
her position with us or induce any customer to cease doing business with us.

As inducements essential to his entering into his employment agreement, on
January 18, 2002, we granted Mr. Vollaro 50,000 restricted shares and options to
purchase 85,000 common shares at an exercise price of $25.30 per share under our
incentive plan. Mr. Vollaro's 85,000 options expire on January 18, 2012.
One-third of his options vested and became exercisable on the date of grant;
one-third became exercisable on January 18, 2003; and the remaining one-third
will become exercisable on January 18, 2004. In the event that his employment
terminates due to his death or permanent disability, all of Mr. Vollaro's
options will immediately vest and become exercisable. In the event that Mr.
Vollaro is terminated for cause, all of his options will cease to be exercisable
and will be immediately forfeited. In the event of termination for any other
reason, all vested options held by Mr. Vollaro will remain exercisable for a
period of 90 days from termination. To the extent that any of Mr. Vollaro's
options have not vested at the time of his termination, the options will be
forfeited.

Mr. Vollaro's restricted shares will vest on January 18, 2007. In the event
that his employment is terminated by ACGL without cause or he resigns for good
reason, or if his employment terminates due to written notice by us of the
intent not to extend his employment contract, a pro rata number of restricted
shares subject to the award

will vest in full on the date of termination, determined by multiplying the
total number of restricted shares subject to the award by a fraction, the
numerator of which is the number of months or part of a month elapsed since
January 18, 2002 and the denominator of which is 60. In the case of termination
by us without cause or resignation by Mr. Vollaro for good reason, however, the
newly vested shares may not be transferred until January 18, 2007 (except that,
following such termination, he may sell an amount of shares to fund any income
and employment taxes relating to the award). In the event that, (1) Mr.
Vollaro's employment terminates due his death or permanent disability or (2)
within two years following a change of control of ACGL, Mr. Vollaro's employment
is terminated by us without cause or he resigns for good reason, all of his
restricted shares will immediately vest. In the event of termination for any
other reason, all restricted shares held by Mr. Vollaro will be forfeited.

See "--Summary Compensation Table" for additional compensation information
relating to Mr. Vollaro, including his bonus for 2002 performance.

CHANGE IN CONTROL ARRANGEMENTS

In May 2000 we sold our prior reinsurance operations to Folksamerica
Reinsurance Company. That sale constituted a change in control for purposes of
our prior change in control arrangements. Under these arrangements, all unvested
stock options and restricted shares held by our employees and the members of our
Board of Directors (other than Mr. Clements) held in May 2000 vested in
connection with the asset sale. In addition, upon the closing of the asset sale,
Mr. Appel received a payment of $1,476,563, and a prorated portion of his target
annual bonus in the amount of $96,823. In addition, Robert Clements, chairman of
our Board, received a special bonus of $300,000 upon the consummation of the
asset sale.

DIRECTOR COMPENSATION

Each non-employee member of our Board of Directors is entitled to receive
an annual cash retainer fee in the amount of $25,000. Each such director is
entitled, at his option, to receive this retainer fee in the form of common
shares instead of cash. If so elected, the number of shares distributed to the
non-employee director would be equal to 120% of the amount of the annual
retainer fee otherwise payable divided by the fair market value of our common
shares. Each non-employee director also receives a meeting fee of $1,000 for
each Board or committee meeting attended. In addition, each non-employee
director serving as chairman of the (1) executive committee or compensation
committee received an annual fee of $3,000 and (2) audit committee received an
annual fee of $5,000. All non-employee directors are entitled to reimbursement
for their reasonable out-of-pocket expenses in connection with their travel to
and attendance at meetings of the Board or committees. Directors who are also
employees of ACGL or its subsidiaries receive no cash compensation for serving
as directors or as members of Board committees.

Pursuant to our long-term incentive and share award plans, upon joining the
Board, each non-employee director received an option to purchase 300 common
shares at an exercise price per share equal to the then market price of a common
share. Our plans also provide for automatic annual grants to non-employee
directors of options to purchase common shares on January 1 of each year. The
amount of shares covered by this annual grant is 1,500 shares.

In addition, in connection with the capital infusion in November 2001, each
current director of the Company (other than Messrs. Clements and Appel), and Mr.
Ian Heap, who resigned from the Board in 2001, were granted options to purchase
15,000 common shares at an exercise price of $20.00 per share. These options
vested upon grant and expire on October 23, 2011.

ROBERT CLEMENTS

Mr. Clements, our chairman, was granted a total of 1,689,629 restricted
shares in connection with the November 2001 capital infusion. Of this total,
1,668,157 restricted shares were granted on October 23, 2001 and 21,472
restricted shares were granted on November 19, 2001. These restricted shares
were initially scheduled to vest in five equal annual installments commencing on
October 23, 2002. During 2002, our Board of Directors accelerated the vesting
terms of these shares as follows: 60% of the shares vested on October 23, 2002
and the balance of

the shares will vest in two equal amounts on October 23, 2003 and October 23,
2004. If Mr. Clements' service as chairman is terminated by us or is not
continued by us for any reason, or his service terminates due to his death or
permanent disability, the restricted shares will vest in full upon such
termination of service. Any unvested shares will be forfeited if Mr. Clements
otherwise terminates his service with us. In addition, Mr. Clements has agreed
that, in the event his service is terminated by us prior to the fifth
anniversary of the date of grant, he will not compete with us during the period
ending on the later of such fifth anniversary or one year following such
termination of service.

In connection with these transactions, we entered into a retention
agreement with Mr. Clements, which replaced our existing retention and change in
control agreement with Mr. Clements. Under the retention agreement, he will
continue to receive compensation at an annual rate equal to one-half of the
salary of ACGL's chief executive officer. For 2002, under this formula, he
received payment in the form of 7,282 restricted shares, which vested on January
1, 2003. For 2003, Mr. Clements will receive payment in the form of cash instead
of restricted shares. Mr. Clements will continue to be eligible to receive a
cash bonus at the discretion of the compensation committee. If Mr. Clements'
service as chairman of our Board is terminated for any reason, he will be
entitled to receive an amount equal to a prorated portion of his compensation
for that year. Mr. Clements agreed that, for a period of one year after
termination of service, he will not induce or attempt to induce any of our
employees to leave his or her position with us. In connection with these
arrangements, Mr. Clements waived his right to receive any non-employee director
compensation.

In addition, a subsidiary of ACGL made a loan to Mr. Clements used by him
to pay income and self employment taxes, which loan was repaid in full by Mr.
Clements in November 2002. See "Certain Relationships and Related Transactions."

JOHN M. PASQUESI

Mr. Pasquesi has been appointed our executive vice chairman. Mr. Pasquesi's
employment agreement provides for an annual base salary of $30,000. The term of
the employment agreement ends on October 24, 2003, but we or Mr. Pasquesi may
terminate his employment at any time. The agreement provides that if Mr.
Pasquesi's employment is terminated without cause or for good reason before
October 24, 2003, he will be entitled to receive an amount equal to six months
of his monthly base salary, reduced by amounts he receives from other employment
or self employment during such period. As one of our executive officers, he is
not entitled to any additional compensation for his service as a director. Mr.
Pasquesi agreed that he will not, for a period of two years following
termination of employment, induce or attempt to induce any of our employees to
leave his or her position with us.

On October 23, 2001, as an inducement essential to his entering into the
employment agreement, we granted Mr. Pasquesi options under our incentive plan
to purchase 375,473 common shares at an exercise price of $20.00 per share.
These options will vest on October 23, 2003 and expire on October 23, 2011. If
Mr. Pasquesi's employment is terminated without cause or for good reason or due
to his death or permanent disability, these options will vest and be exercisable
for the remainder of the option period. If he terminates his employment without
good reason or his employment is terminated by us with cause, his unvested
options will be forfeited, and his vested options, to the extent then
exercisable, may be exercised for the remainder of the option period. In
addition, on October 23, 2001, in consideration for his providing structuring
and advisory services to us in connection with the capital infusion, we granted
Mr. Pasquesi options to purchase 750,946 common shares at an exercise price of
$20.00 per share. These options vested upon grant and expire on October 23,
2011.

REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS

The compensation committee of our Board of Directors is responsible for
developing and making recommendations to the Board with respect to all matters
related to the compensation of our executive officers and establishing overall
compensation policies for our employees. The following report summarizes our
current compensation policies.

COMPENSATION PHILOSOPHY

Our compensation program is designed to attract and retain executives who
will contribute to our long-term success, to reward executives for achieving
both our short and long-term strategic goals, to link executive and shareholder
interests through equity-based plans, and to provide a compensation package that
recognizes individual contributions and our performance.

The principal components of our compensation program are base salary,
annual performance bonus and share-based incentives. In determining the amount
and form of executive compensation, the compensation committee considers the
competitive market for senior executives, the executive's role in achieving our
business objectives and our overall performance. As the executive's level of
responsibility increases, a greater portion of potential total compensation
opportunity may be based on corporate performance.

BASE SALARY

Base salaries reflect individual positions, responsibilities, experience
and potential contribution to our success. Actual salaries vary according to the
compensation committee's subjective assessment of a number of factors in its
review of base salaries of executives. The compensation committee will
periodically evaluate each individual's job responsibilities and related
compensation, and compare cash compensation practices to peer groups and other
relevant compensation data to ensure that our compensation structure is
consistent with its compensation philosophy. Base salary increases are based on
individual and corporate performance and may reflect market and cost-of-living
increases.

ANNUAL PERFORMANCE BONUS

Annual bonuses are based on corporate performance for the prior year and an
evaluation of each employee's respective contribution to our performance. As an
employee's responsibilities increase, the portion of his or her bonus that is
dependent on corporate performance increases.

Target performance bonus opportunities are generally established for all
employees (other than the president of ACGL) upon the commencement of employment
and are periodically reviewed by the compensation committee. An individual's
target performance bonus opportunity is expressed as a percentage of base
salary. For each employee, his or her target is an approximation of the bonus
payment that may be paid if performance goals and other expectations are
attained by both the employee and the company as a whole.

We have established an incentive compensation plan in order to provide our
employees with an opportunity to earn annual bonus compensation as an incentive
and reward for their efforts to achieve our financial and strategic objectives.
The plan combines two sets of performance measures: (1) a qualitative judgment
about progress and performance each year based on a number of factors, including
the management plan for such year and non-prescribed measures ("Target Bonus
Approach"), and (2) a quantitative, formula-based measure ("Formula Approach").

For 2002, the Target Bonus Approach was applied to Messrs. Appel, Ingrey,
Iordanou and Vollaro, as well as all executives included in our insurance
segment. Under the Target Bonus Approach, performance is judged against the
achievement of the strategic and financial objectives contained in the
applicable management plan submitted to the Board for the year, peer group
performance and other measures deemed applicable by the compensation committee.
At the individual level, actual performance bonuses for each participant
reflects both individual and segment performance. All performance assessments
include both objective and subjective elements. For 2002, there was no
predetermined weight given to specific performance criteria. Rather, the
compensation committee's evaluation involved a subjective balancing of the
various measures of performance.

For 2002, the Formula Approach was applied to Mr. Evans and all executives
included in our reinsurance segment (other than Mr. Ingrey). Under the Formula
Approach, a bonus pool was established for our reinsurance segment based on the
2002 underwriting year performance. Under the plan, the 2002 underwriting year
bonus pool

will be recalculated annually, and any resultant payments will be made to the
participants, over a 10-year development period.

For 2002, a significant portion of the bonus amounts for Messrs. Appel,
Iordanou, Evans and Vollaro were paid in the form of restricted common shares,
which vest in four equal annual installments commencing on February 20, 2003. We
believe that share-based awards are a particularly important component of
compensation that correlates long-term individual motivation and reward to our
performance, as described below.

LONG-TERM INCENTIVE COMPENSATION

Our share-based compensation is designed to align the interests of
executives and shareholders by providing value to the executive as the share
price increases. Due to the variability of the share price, stock options,
restricted shares and other share-based awards, which comprise a significant
portion of executive compensation, are dependent upon our overall results and
how we are perceived by our shareholders and the marketplace. Generally, options
awarded to executives are granted at 100% of the market value of the shares on
the date of grant and become exercisable or vest over a prescribed period,
motivating executives to remain with us and sustain high corporate performance
in order to increase the value of such awards.

Share-based compensation grant levels and awards are reviewed and
determined by the compensation committee periodically. Grants of share-based
compensation are determined on the basis of a number of factors, including (1)
both corporate and individual performance, (2) competitive total compensation
and long-term incentive grant levels as determined in the market and (3) our
share ownership objectives.

Share-based awards granted to the named executive officers during 2002 are
summarized under the captions "--Summary Compensation Table," "--Option Grants
in Last Fiscal Year" and "--CEO Compensation." See also "--Employment
Arrangements."

CEO COMPENSATION

During 2002, the annual base salary of Peter Appel, our president and chief
executive officer, was increased from $375,000 to $500,000. For 2002
performance, he also received a bonus of $625,000, of which $375,000 was paid in
cash and $250,000 was paid in the form of restricted shares, which vest in four
equal installments commencing February 2003. In determining Mr. Appel's total
compensation, the quantitative and qualitative criteria described above were
applied. See "--Summary Compensation Table" and "--Employment Arrangements."

COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(m)

Section 162(m) of the Code generally limits the deductible amount of annual
compensation paid to the chief executive officer and four other most highly
compensated executive officers to no more than $1,000,000 each. Since ACGL will
not generally be subject to United States income tax, the limitation on
deductibility will not directly apply to it. However, the limitation would apply
to a United States subsidiary of ACGL if it employs the chief executive officer
or one of the four other most highly compensated executive officers. Qualified
performance-based compensation will be excluded from the $1,000,000 limitation
on deductibility. Our policy is to qualify, to the extent reasonable, our
executive officers' compensation for deductibility under applicable tax laws.
However, the compensation committee believes that its primary responsibility is
to provide a compensation program that will attract, retain and reward the
executive talent necessary to our success. Consequently, the compensation
committee recognizes that the loss of a tax deduction could be necessary in some
circumstances due to the restrictions of Section 162(m).

The compensation committee will review tax consequences as well as other
relevant considerations in connection with compensation decisions.

COMPENSATION COMMITTEE
JOHN L. BUNCE, Jr. (CHAIRMAN)
KEWSONG LEE
JAMES J. MEENAGHAN
ROBERT F. WORKS

PERFORMANCE GRAPH

The following graph compares the cumulative total shareholder return on our
common shares for each of the last five years through December 31, 2002 to the
cumulative total return, assuming reinvestment of dividends, of (1) Standard &
Poor's ("S&P") 500 Composite Stock Index ("S&P 500 Index") and (2) the S&P 500
Property & Casualty Insurance Index. The share price performance presented below
is not necessarily indicative of future results.

CUMULATIVE TOTAL SHAREHOLDER RETURN (1)(2)

[CHART]

BASE
PERIOD
COMPANY NAME/INDEX 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02
----------------------------------------------------------------------------------------------------------------

- ARCH CAPITAL GROUP LTD. $ 100.00 $ 97.75 $ 56.74 $ 67.42 $ 115.73 $ 140.09
- S&P 500 INDEX $ 100.00 $ 128.58 $ 155.63 $ 141.46 $ 124.65 $ 97.10
- S&P 500 PROPERTY & CASUALTY INSURANCE $ 100.00 $ 93.37 $ 69.57 $ 108.42 $ 99.72 $ 88.73
INDEX

(1) Stock price appreciation plus dividends.
(2) The above graph assumes that the value of the investment was $100 on
December 31, 1997. The closing price for our common shares on December
31, 2002 (i.e., the last trading day in 2002) was $31.17.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information available to us as of April 1,
2003 with respect to the ownership of our voting shares by (1) each person known
to us to be the beneficial owner of more than 5% of any class of our outstanding
voting shares, (2) each director and named executive officer of ACGL and (3) all
of the directors and executive officers of ACGL as a group. Except as otherwise
indicated, each person named below has sole investment and voting power with
respect to the securities shown. Please note that this table addresses ownership
of voting shares; it does not address the voting power of those shares, which,
in some cases, is different than the percentage set forth below.

COMMON SHARES
---------------------------------------------------------------------------------------------
(A) (B)
NUMBER OF RULE 13d-3 (C)
COMMON SHARES PERCENTAGE FULLY-DILUTED
BENEFICIALLY OWNED OWNERSHIP PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER (1) (1) (2)
------------------------------------ ------------------ ---------- -------------

Warburg Pincus (3).................. 22,914,515 46.9% 31.6%
c/o 466 Lexington Avenue
New York, New York 10017

H&F Corporate Investors IV
(Bermuda), Ltd. (4)............... 14,353,532 35.3 19.8
c/o A.S.&K. Services Ltd.
41 Cedar Avenue
Hamilton HM 12 Bermuda

BAMCO Inc.(5)....................... 3,076,200 11.0 4.2
767 Fifth Avenue
New York, New York 10153

Insurance Private Equity Investors,
L.L.C. (6)........................ 2,828,454 9.3 3.9
3003 Summer Street
Stamford, CT 06905

Steinberg Priest & Sloane (7)....... 2,256,827 8.1 3.1
12 East 49th Street
New York, New York 10017

Third Avenue Management LLC (8)..... 2,246,616 8.0 3.1
767 Third Avenue
New York, New York 10017

Farallon Partners, L.L.C. (9)....... 2,204,025 7.5 3.0
One Maritime Plaza
Suite 1325
San Francisco, CA 94111

Wellington Management
Company, LLP (10)................. 1,829,880 6.5 2.5
75 State Street
Boston, Massachusetts 02109

Robert Clements (11)................ 1,874,046 6.6 2.6

Peter A. Appel (12)................. 886,015 3.1 1.2

Paul B. Ingrey (13)................. 810,098 2.9 1.3

Constantine Iordanou (14)........... 667,825 2.4 1.1

Dwight R. Evans (15)................ 152,397 * *

John D. Vollaro (16)................ 114,017 * *

John M. Pasquesi (17)............... 1,175,214 4.0 2.1

Wolfe "Bill" H. Bragin (18)......... 100 * *

John L. Bunce, Jr. (19)............. 14,353,532 35.2 19.8

Robert Glanville (20)............... 1,451 * *

Kewsong Lee (21).................... 22,914,515 46.9 31.6

James J. Meenaghan (22)............. 19,687 * *

David R. Tunnell (23)............... 14,353,532 35.2 19.8

Robert F. Works (24)................ 26,546 * *

All directors and ex.cutive officers
(16 persons) (25)................. 43,134,931 67.3% 60.6%

SERIES A CONVERTIBLE PREFERENCE SHARES
----------------------------------------------------------------------------------------------------
NUMBER OF PREFERENCE
NAME AND ADDRESS OF SHARES RULE 13d-3
BENEFICIAL OWNER BENEFICIALLY OWNED (26) PERCENTAGE OWNERSHIP (26)
-------------------------------------------- ----------------------- -------------------------

Warburg Pincus (3).......................... 20,906,560 53.8%

H&F Corporate Investors IV (Bermuda),
Ltd. (4).................................. 12,745,820 32.8

Insurance Private Equity Investors,
L.L.C. (6)................................ 2,581,057 6.6

Robert Clements (11)........................ 103,242 *

Peter A. Appel (12)......................... 51,621 *

Paul B. Ingrey (13)......................... 103,242 *

Constantine Iordanou........................ 0 0

Dwight R. Evans (15)........................ 20,648 *

John D. Vollaro............................. 0 0

John M. Pasquesi (17)....................... 387,158 1.0

Wolfe "Bill" H. Bragin...................... 0 0

John L. Bunce, Jr. (19)..................... 12,745,820 32.8

Robert Glanville........................... 0 0

Kewsong Lee (21)............................ 20,906,560 53.8

James J. Meenaghan.......................... 0 0

David R. Tunnell (23)...................... 12,745,820 32.8

Robert F. Works............................. 0 0

All directors and executive officers
(16 persons) (25)....................... 34,318,291 88.3%

----------
* Denotes beneficial ownership of less than 1.0%.

(1) Pursuant to Rule 13d-3 promulgated under the Exchange Act, amounts shown
include common shares that may be acquired by a person within 60 days of
April 1, 2003. Therefore, column (B) has been computed based on (a)
27,977,277 common shares actually outstanding as of April 1, 2003 and
(b) common shares that may be acquired within 60 days of April 1, 2003
upon the exercise of options and warrants and conversion of preference
shares held only by the person whose Rule 13d-3 Percentage Ownership of
common shares is being computed. Each preference share is convertible
into one common share, subject to adjustments. The preference shares are
mandatorily convertible under certain circumstances. The purchase price
for the preference shares is subject to certain adjustments, which may
result in the issuance of additional preference shares to the
purchasers. For a description of the adjustments, please refer to our
Subscription Agreement, filed as an exhibit to our 2002 Annual Report.

(2) Amounts shown under column (C) in the above table have been computed
based on (a) 27,977,277 common shares actually outstanding as of April
1, 2003, (b) common shares that may be acquired upon the exercise of
all outstanding options and warrants and conversion of all preference
shares, whether or not such options and warrants are exercisable
within 60 days held by all persons, and (c) 17,668 restricted common
share units. As of April 1, 2003, there were outstanding (i) class B
warrants to purchase an aggregate of 150,000 common shares, (ii)
options to purchase an aggregate of 5,508,911 common shares and (iii)
38,844,665 preference shares. The class B warrants are currently
exercisable at $20 per share and expire on September 19, 2005. See
note (1) for a description of the preference shares.

(3) The security holders are Warburg Pincus (Bermuda) Private Equity VIII,
L.P. ("WP VIII Bermuda"), Warburg Pincus (Bermuda) International
Partners, L.P. ("WPIP Bermuda"), Warburg Pincus Netherlands
International Partners I, C.V. ("WPIP Netherlands I") and Warburg Pincus
Netherlands International Partners II, C.V. ("WPIP Netherlands II").
Warburg Pincus (Bermuda) Private Equity Ltd. ("WP VIII Bermuda Ltd.") is
the sole general partner of WP VIII Bermuda. Warburg Pincus (Bermuda)
International Ltd. ("WPIP Bermuda Ltd.") is the sole general partner of
WPIP Bermuda. Warburg, Pincus & Co. ("WP") is the sole general partner
of WPIP Netherlands I and WPIP Netherlands II. WP VIII Bermuda, WPIP
Bermuda, WPIP Netherlands I and WPIP Netherlands II are managed by
Warburg Pincus LLC ("WP LLC"). The foregoing is based on a Schedule 13D
dated December 18, 2002 and filed with the SEC by these entities.
Amounts in columns (A), (B) and (C) reflect (a) common shares issuable
upon conversion of preference shares issued under the Subscription
Agreement, (b) 2,337 common shares owned by Mr. Lee for the benefit of
these entities and (c) 1,700 common shares issuable upon exercise of
currently exercisable options held by Mr. Lee for the benefit of these
entities.

(4) The security holders are HFCP IV (Bermuda), L.P. ("HFCP IV Bermuda"),
H&F International Partners IV-A (Bermuda), L.P. ("HFIP IV-A Bermuda"),
H&F International Partners IV-B (Bermuda), L.P. ("HFIP IV-B Bermuda")
and H&F Executive Fund IV (Bermuda), L.P. ("HFEF Bermuda," and together
with HFCP IV Bermuda, HFIP IV-A Bermuda and HFIP IV-B Bermuda, the "H&F
Funds"). H&F Investors IV (Bermuda), L.P. ("HFI IV Bermuda") is the sole
general partner of the H&F Funds. H&F Corporate Investors IV (Bermuda)
Ltd. ("HFCI Bermuda") is the sole general partner of HFI IV Bermuda. HFI
IV Bermuda may be

deemed to control the H&F Funds. The foregoing is based on a Schedule
13D and a Form 4 dated March 3, 2003 and December 18, 2002,
respectively, and filed with the SEC. Amounts in columns (A), (B) and
(C) reflect (a) common shares issuable upon conversion of preference
shares issued under the Subscription Agreement, (b) 3,688 common shares
owned by Messrs. Bunce and Tunnell for the benefit of these entities and
(c) 1,800 common shares issuable upon exercise of currently exercisable
options held by Messrs. Bunce and Tunnell for the benefit of these
entities.

(5) Based upon a Schedule 13G dated February 13, 2003, filed with the SEC
jointly by Baron Capital Group, Inc. ("BCG"), BAMCO, Inc. ("BAMCO"),
Baron Capital Management, Inc. ("BCM") and Ronald Baron. In the Schedule
13G, BAMCO reported that BCG and Ronald Baron are parent holding
companies, and that BAMCO and BCM are each investment advisors. In
addition, the Schedule 13G reported that (i) BCG has sole voting and
dispositive power with respect to 65,000 common shares, (ii) BAMCO has
shared voting and dispositive power with respect to 1,131,400 common
shares, (iii) BCM has sole voting power with respect to 65,000 common
shares, shared voting power with respect to 341,700 common shares, sole
dispositive power with respect to 65,000 common shares and shared
dispositve power with respect to 341,700 common shares and (iv) Ronald
Baron has sole voting power with respect to 65,000 common shares, shared
voting power with respect to 1,473,100 common shares, sole dispositive
power with respect to 65,000 shares and shared dispositive power with
respect to 1,538,100 common shares.

(6) Insurance Private Equity Investors, L.L.C. ("Insurance") is a wholly
owned subsidiary of General Electric Pension Trust ("GEPT"), which is an
employee benefit plan for the benefit of employees of General Electric
Company ("GE"). GE Asset Management Incorporated ("GEAM"), a wholly
owned subsidiary of GE, acts as manager of Insurance and as investment
manager of GEPT. Insurance, GEPT and GEAM may be deemed to share
beneficial ownership. Excludes securities held by Orbital Holdings,
Ltd., which is an indirect wholly owned subsidiary of GE, as to which
Insurance, GEPT and GEAM disclaim beneficial ownership. Based on a
Schedule 13D dated February 24, 2003 and filed with the SEC by these
entities. Amounts in columns (A), (B) and (C) reflect common shares
issuable upon conversion of preference shares under the Subscription
Agreement.

(7) Based upon a Schedule 13G dated February 13, 2003, filed with the SEC by
Steinberg Priest & Sloane ("SPS"), an investment advisor. In the
Schedule 13G, SPS reported that it has sole voting power with respect to
698,694 common shares and sole dispositive power with respect to
2,256,827 common shares.

(8) Based upon a Schedule 13G dated January 29, 2003, filed with the SEC by
Third Avenue Management LLC ("TAM"), an investment advisor. In the
Schedule 13G, TAM reported that it has sole voting power with respect to
2,159,241 common shares and sole dispositive power with respect to
2,246,616 common shares. The Schedule 13G also indicates that the former
name of TAM is EQSF Advisers Inc.

(9) Based upon additional publicly available information, as well as a
Schedule 13D dated September 6, 2002 filed with the SEC jointly by
Andrew B. Fremder, David I. Cohen, Enrique H. Boilini, Farallon Capital
Institutional Partners II, L.P., Farallon Capital Institutional Partners
III, L.P., Farallon Capital Partners, L.P., Farallon Partners, L.P.,
Joseph F. Downes, Mark C. Wehrly, Monica R. Landry, Richard B. Fried, RR
Capital Partners, L.P., Stephen L. Millham, Thomas F. Steyer, Tinicum
Partners, L.P., William F. Duhamel, and William F. Mellin. Farallon
Partners, L.L.C. is the sole general partner of each of Farallon Capital
Partners, L.P., Farallon Capital Institutional Partners II, L.P.,
Farallon Capital Institutional Partners III, L.P., Tinicum Partners,
L.P. and RR Capital Partners, L.P. Amounts in columns (A), (B) and (C)
reflect common shares issuable upon conversion of preference issued
under the Subscription Agreement. The Schedule 13D also reports that the
managing members of Farallon Partners, L.L.C. are Andrew B. Fremder,
David I. Cohen, Enrique H. Boilini, Joseph F. Downes, Mark C. Wehrly,
Monica R. Landry, Richard B. Fried, Stephen L. Millham, Thomas F.
Steyer, William F. Duhamel and William F. Mellin.

(10) Based upon a Schedule 13G dated February 12, 2003, filed with the SEC by
Wellington Management Company, LLP ("WMC"), an investment advisor. In
the Schedule 13G, WMC reported that it does not have

sole voting or dispositive power with respect to any of its reported
common shares. The Schedule 13D also indicates that all reported common
shares are held of record by clients of WMC.

(11) Amounts in columns (A), (B) and (C) reflect (a) 1,135,800 common shares,
32,198 common shares issuable upon exercise of class B warrants and
107,125 common shares issuable upon exercise of currently exercisable
options owned directly by Mr. Clements, (b) 259,766 common shares and
18,698 common shares issuable upon exercise of class B warrants owned
directly by the spouse of Mr. Clements, (c) 48,512 common shares and
56,302 common shares issuable upon exercise of class B warrants owned by
a grantor retained annuity trust ("GRAT") established for the benefit of
the children of Mr. Clements, (d) 109,678 common shares directly held by
Taracay Investors ("Taracay"), which is a general partnership, the
general partners of which consist of Mr. Clements and members of his
family and the managing partner of which is Mr. Clements, and (e) 2,725
common shares acquired from the exercise of class A warrants and 103,242
preference shares acquired directly by Sound View Partners, L.P. ("Sound
View") as part of the November 2001 capital infusion. Sound View is a
limited partnership, the general partners of which are Mr. Clements and
his spouse. Taracay owns approximately 50% of Sound View. Mr. Clements
disclaims beneficial ownership of (a) all securities owned directly by
his spouse, (b) approximately 97% of the securities owned directly by
Taracay, which represents the ownership percentage of Taracay by Taracay
partners other than Mr. Clements, and (c) approximately 98% of the
securities directly owned by Sound View, which represents the ownership
percentage of Sound View by Sound View partners other than Mr. Clements,
but excluding that portion of Sound View held by Taracay to the extent
of Mr. Clements' ownership of Taracay stated above in this note (11).

(12) Amounts in columns (A), (B) and (C) reflect (a) 146,187 common shares
owned directly by Mr. Appel, (b) 688,207 common shares issuable upon
exercise of currently exercisable options and (c) common shares issuable
upon conversion of preference shares.

(13) Amounts in columns (A) and (B) reflect (a) 425,252 common shares owned
directly by Mr. Ingrey (including 422,407 restricted shares, which are
subject to vesting), (b) 281,604 common shares issuable upon exercise of
currently exercisable options and (c) common shares issuable upon
conversion of preference shares. The amount in column (C) includes
140,803 common shares issuable upon exercise of stock options that are
not currently exercisable within 60 days of the date hereof.

(14) Amounts in columns (A) and (B) reflect (a) 325,000 common shares owned
directly by Mr. Iordanou (including 431,383 restricted shares, which are
subject to vesting), (b) 283,333 common shares issuable upon exercise
of currently exercisable options and (c) 4,200 common shares owned
directly by Mr. Iordanou's children. The amount in column (C) includes
(i) 141,667 common shares issuable upon exercise of stock options that
are not currently exercisable within 60 days of the date hereof and (ii)
17,668 restricted common share units (13,251 of which are subject to
vesting), which will be settled in common shares of ACGL upon
termination of Mr. Iordanou's employment. Mr. Iordanou disclaims
beneficial ownership of all shares owned by his children.

(15) Amounts in columns (A) and (B) reflect (a) 56,749 common shares owned
directly by Mr. Evans (including 53,578 restricted shares, which are
subject to vesting), (b) 75,000 common shares issuable upon exercise of
currently exercisable options and (c) common shares issuable upon
conversion of preference shares. The amount in column (C) includes
50,000 common shares issuable upon exercise of stock options that are
not currently exercisable within 60 days of the date hereof.

(16) Amounts in columns (A) and (B) reflect (a) 57,350 common shares owned
directly by Mr. Vollaro (including 55,512 restricted shares, which are
subject to vesting) and (b) 56,667 common shares issuable upon exercise
of currently exercisable options. The amount in column (C) includes
28,333 common shares issuable upon exercise of stock options that are
not currently exercisable within 60 days hereof.

(17) Amounts in columns (A) and (B) reflect (a) 37,110 common shares owned
directly by Otter Capital, LLC, for which Mr. Pasquesi serves as the
managing member, (b) 750,946 common shares issuable upon exercise of
currently exercisable options and (b) common shares issuable upon
conversion of preference shares. The

amount in column (C) includes 375,473 common shares issuable upon
exercise of stock options that are not currently exercisable within 60
days of the date hereof.

(18) Amounts in columns (A) and (B) reflect 100 common shares issuable upon
exercise of currently exercisable options. The amount in column (C)
includes 1,700 common shares issuable upon exercise of stock options
that are not currently exercisable within 60 days of the date hereof.

(19) Amounts in all columns reflect securities held by or for the benefit of
the entities listed in note (4). Mr. Bunce is a member of an investment
committee of HFCI Bermuda which has investment discretion over the
securities held by the H&F Funds. Mr. Bunce is a 9.9% shareholder of
HFCI Bermuda. All shares indicated as owned by Mr. Bunce are included
because he is a member of our Board and is affiliated with HFCI Bermuda.
Mr. Bunce may be deemed to have an indirect pecuniary interest (within
the meaning of Rule 16a-1 under the Exchange Act) in an indeterminate
portion of the shares beneficially owned by the H&F Funds. Mr. Bunce
disclaims beneficial ownership of all shares owned by the H&F Funds,
except to the extent of his indirect pecuniary interest in the issuer
held through the H&F Funds. Based on a Form 4 dated March 4, 2003 filed
with the SEC by Mr. Bunce.

(20) Amounts reflect securities held by or for the benefit of the entities
listed in note (3). Amounts in columns (A) and (B) reflect 1,351 common
shares owned directly by Mr. Glanville and 100 common shares issuable
upon exercise of currently exercisable options. The amount in column (C)
includes 1,700 common shares issuable upon exercise of stock options
that are not currently exercisable within 60 days of the date hereof.

(21) Amounts reflect securities held by or for the benefit of the entities
listed in note (3). Mr. Lee is a general partner of WP, a managing
director and member of WP LLC and a beneficial owner of certain shares
of capital stock of WP VIII Bermuda Ltd. and WPIP Bermuda Ltd. All
shares indicated as owned by Mr. Lee are included because he is a member
of our Board and is affiliated with these Warburg Pincus entities. Mr.
Lee may be deemed to have an indirect pecuniary interest (within the
meaning of Rule 16a-1 under the Exchange Act) in an indeterminate
portion of the shares owned by WP VIII Bermuda, WPIP Bermuda, WPIP
Netherlands I and WPIP Netherlands II. Mr. Lee disclaims beneficial
ownership of all shares owned by these Warburg Pincus entities.

(22) Amounts in columns (A) and (B) reflect 2,887 common shares owned
directly by Mr. Meenaghan and 16,800 common shares issuable upon
exercise of currently exercisable options. The amount in column (C)
includes 1,500 common shares issuable upon exercise of stock options
that are not currently exercisable within 60 days of the date hereof.

(23) Amounts in all columns reflect securities held by or for the benefit of
the entities listed in note (4). Mr. Tunnell is a member of an
investment committee of HFCI Bermuda which has investment discretion
over the securities held by the H&F Funds. Mr. Tunnell is a 5.45%
shareholder of HFCI Bermuda. All shares indicated as owned by Mr.
Tunnell are included because he is a member of our Board and is
affiliated with HFCI Bermuda. Mr. Tunnell may be deemed to have an
indirect pecuniary interest (within the meaning of Rule 16a-1 under the
Exchange Act) in an indeterminate portion of the shares beneficially
owned by the H&F Funds. Mr. Tunnell disclaims beneficial ownership of
all shares owned by the H&F Funds, except to the extent of his indirect
pecuniary interest in the issuer held through the H&F Funds.

(24) Amounts in columns (A) and (B) reflect 6,746 common shares owned
directly by Mr. Works and 19,800 common shares issuable upon exercise of
currently exercisable options. The amount in column (C) includes 1,500
common shares issuable upon exercise of stock options that are not
currently exercisable within 60 days hereof.

(25) Includes an aggregate of 139,488 common shares, including common shares
issuable upon exercise of currently exercisable stock options
beneficially owned by two executive officers of subsidiaries of ACGL who
are not directors of ACGL. Such executive officers do not own any
preference shares.

(26) Under the Subscription Agreement, the purchase price for the preference
shares is subject to certain adjustments, which may result in the
issuance of additional preference shares to the purchasers. For a
description of the adjustments, please refer to our Subscription
Agreement, filed as an exhibit to our 2002 Annual Report.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PURCHASE PRICE ADJUSTMENT AND PAYMENT OF CERTAIN FEES

In November 2001, a group of investors led by the Warburg Pincus funds and
the Hellman & Friedman funds invested an aggregate of $750.0 million in cash in
our equity securities, including our series A convertible preference shares and
class A warrants. Certain members of our management (or entities affiliated with
them) also invested an aggregate of $13.2 million in cash in our equity
securities. Under the Subscription Agreement entered into with the investors,
the purchase price paid for the securities purchased in the capital infusion was
based on the estimated, unaudited U.S. book value under generally acceptable
accounting principles ("GAAP") of our common shares as of June 30, 2001 (before
giving effect to certain agreed transaction costs incurred in connection with
the capital infusion that had not yet been determined), subject to certain
adjustments. During 2002, we issued an additional 3,706,930 preference shares
pursuant to the Subscription Agreement as follows: (i) 875,753 Preference Shares
were issued by us on June 28, 2002 pursuant to a post-closing purchase price
adjustment mechanism under the Subscription Agreement; and (ii) 2,831,177
preference shares were issued by us on December 16, 2002 pursuant an agreed upon
adjustment under the Subscription Agreement. We had agreed to issue to the new
investors additional preference shares such that the per share price would be
adjusted downward by $1.50 per preference share when the closing price of our
common shares was at least $30 per share for at least 20 out of 30 consecutive
trading days on or prior to September 19, 2005, which condition was met on
December 16, 2002.

Under the Subscription Agreement, we agreed to reimburse Warburg Pincus and
Hellman & Friedman for their costs and expenses in connection with the November
2001 capital infusion. We have reimbursed Warburg Pincus and Hellman & Friedman
approximately $2.3 million in the aggregate under such agreement.

All material agreements relating to the November 2001 capital infusion were
included as exhibits to our 2002 Annual Report.

REPAYMENT OF CHAIRMAN'S LOAN

During 2002, ACGL's Board of Directors accelerated the vesting from ratably
over five years commencing October 23, 2002 to vesting 60% on October 23, 2002,
and the balance equally on October 23, 2003 and October 23, 2004, of 1,689,629
restricted common shares granted to Robert Clements, chairman of our Board of
Directors, which had been issued in connection with the November 2001 capital
infusion. In November 2002, Mr. Clements also repaid the outstanding $13.5
million loan previously made to him by the company. In order to facilitate the
repayment of the loan, we agreed to repurchase an amount of Mr. Clements' shares
equal to the principal balance of the loan less any cash payment made by Mr.
Clements, for a price per share based on the market price for the common shares
as reported on the NASDAQ National Market on the date of sale. In addition, we
agreed to make gross-up payments to Mr. Clements in the event of certain tax
liabilities in connection with the repurchase. Pursuant to such arrangements, in
November 2002, we repurchased 411,744 common shares from Mr. Clements for an
aggregate purchase price of $11.5 million. Mr. Clements used all of such sale
proceeds and $2.0 million in cash to repay the entire loan balance in November
2002.

OTHER

During 2002, we leased temporary office space from Tri-City Brokerage Inc.
(together with its affiliates, "Tri-City"), a company in which Peter Appel,
president and chief executive officer of ACGL, Mr. Clements and Distribution
Investors, LLC held ownership interests (through March 2003), for aggregate
rental expense of approximately $201,000 for the year ended December 31, 2002.
In addition, Tri-City, as broker, has placed business with our insurance
operations and we have incurred commission expenses of approximately $1.5
million under such ar-

rangements for the year ended December 31, 2002. In March 2003, Hales received a
fee of $1.25 million from Tri-City for advisory services in connection with the
sale of Tri-City to non-affiliated persons.

In connection with our information technology initiative in 2002, we have
entered into arrangements with two software companies, which provide document
management systems and information and research tools to insurance underwriters,
in which Mr. Clements and John Pasquesi, the vice chairman of our Board of
Directors, each own minority ownership interests. We will pay fees under such
arrangements based on usage. Under one of these agreements, fees payable are
subject to a minimum of approximately $575,000 for the two-year period ending
July 2004. We have made payments of approximately $232,000 under such
arrangements for the year ended December 31, 2002.

Graham B. Collis, a director of certain of our non-U.S. subsidiaries, is
partner in the law firm of Conyers Dill & Pearman, which provides legal services
to the Company and its subsidiaries.

PROPOSAL 2 -- ELECTION OF SUBSIDIARY DIRECTORS

Under our bye-law 75, the boards of directors of any of our subsidiaries
that is incorporated in Bermuda, Barbados or the Cayman Islands, and any other
subsidiary designated by our Board of Directors, must consist of persons who
have been elected by our shareholders as Designated Company Directors.

The persons named below have been nominated to serve as Designated Company
Directors of our non-United States subsidiaries indicated below. Unless
authority to vote for this nominee is withheld, the enclosed proxy will be voted
for this nominee, except that the persons designated as proxies reserve
discretion to cast their votes for other persons in the unanticipated event that
this nominee is unable or declines to serve.

ARCH REINSURANCE LTD. AND OTHER
NON-U.S. SUBSIDIARIES, AS REQUIRED OR DESIGNATED
UNDER BYE-LAW 75 (EXCEPT AS
OTHERWISE INDICATED IN THIS PROPOSAL 2) ARCH CAPITAL HOLDINGS LTD.
--------------------------------------- --------------------------

Dwight R. Evans Peter A. Appel
Marc Grandisson Graham B. Collis
Paul B. Ingrey John D. Vollaro
Constantine Iordanou

ARCH RISK TRANSFER SERVICES LTD.
ALTERNATIVE RE HOLDINGS LIMITED
ALTERNATIVE RE LIMITED
ALTERNATIVE INSURANCE COMPANY LIMITED
BARBADOS SUBSIDIARIES ALTERNATIVE UNDERWRITING SERVICES, LTD.
--------------------- ---------------------------------------

Debra M. O'Connor Graham B. Collis
Steven K. Parker John D. Vollaro
Robert C. Worme

Mr. Appel, 41, has been president and chief executive officer of ACGL since
May 5, 2000 and a director of ACGL since November 1999. He was executive vice
president and chief operating officer of ACGL from November 1999 to May 5, 2000,
and general counsel and secretary of ACGL from November 1995 to May 5, 2000. Mr.
Appel previously served as a managing director of ACGL from November 1995 to
November 1999. From September 1987 to November 1995, Mr. Appel practiced law
with the New York firm of Willkie Farr & Gallagher, where he was a partner from
January 1995. Mr. Appel is currently a member of the board of overseers and a
member of the executive committee of the School of Risk Management, Insurance
and Actuarial Science of St. John's University. He holds an A.B. degree from
Colgate University and a law degree from Harvard University.

Mr. Collis, 43, has practiced law at Conyers Dill & Pearman in Bermuda
since 1992, where he has been a partner since 1995. He is a director of Coastal
Caribbean Oils & Minerals Limited.

Mr. Evans, 50, has served as president of Arch Re (Bermuda) since October
2001. From 1998 until October 2001, Mr. Evans was executive vice president of
St. Paul Re. From 1983 until 1998, Mr. Evans was employed as executive vice
president for F&G Re Inc. Prior to that, Mr. Evans served as assistant vice
president at Skandia Reinsurance Company and as a reinsurance underwriter at
Prudential Reinsurance Company (now Everest Re Company). He holds a B.A. degree
from Ohio University.

Mr. Grandisson, 35, has served as senior vice president, chief underwriting
officer and chief actuary of Arch Re (Bermuda) since October 2001. From March
1999 until October 2001, Mr. Grandisson was employed as vice president and
actuary of the reinsurance division of Berkshire Hathaway. From July 1996 until
February 1999, Mr. Grandisson was employed as vice president-director of F&G Re
Inc. From July 1994 until July 1996, Mr. Grandisson was employed as an actuary
for F&G Re. Prior to that, Mr. Grandisson was employed as an actuarial assistant
of Tillinghast-Towers Perrin. Mr. Grandisson holds an M.B.A. degree from the
Wharton School of the University of Pennsylvania. He is also a fellow of the
Casualty Actuarial Society.

Mr. Ingrey, 63, has served as a director of ACGL and as chief executive
officer of Arch Re (Bermuda) since October 2001, and was elected chairman of
Arch Re (Bermuda) in March 2002. He was retired from 1996 to 2001. Mr. Ingrey
was the founder of F&G Re Inc., a reinsurance subsidiary of USF&G Corporation,
and served as its chairman and chief executive officer from 1983 to 1996. Prior
to that, he was senior vice president of Prudential Reinsurance, an underwriter
of property and casualty reinsurance. He has also served as a director of USF&G
Corporation (until its sale to The St. Paul Companies, Inc. in 1998) and E.W.
Blanch Holdings, Inc., the holding company for E.W. Blanch Co., which provides
risk management and distribution services through several subsidiaries (until
its sale to Benfield Greig, the London-based international reinsurance broker,
in April 2001) and he was formerly a director of Fairfax Financial Holdings
Limited, an insurance and reinsurance company with a focus on property and
casualty insurance until September 2002. He holds a B.A. degree from Colgate
University and an M.B.A. degree from the School of Risk Management, Insurance
and Actuarial Science of St. John's University (formerly the College of
Insurance).

Mr. Iordanou, 53, has served as a director of ACGL and as chief executive
officer of Arch Capital Group (U.S.) Inc. since January 1, 2002. From March 1992
through December 2001, Mr. Iordanou served in various capacities for Zurich
Financial Services and its affiliates, including as senior executive vice
president of group operations and business development of Zurich Financial
Services, president of Zurich-American Specialties Division, chief operating
officer and chief executive officer of Zurich-American and chief executive
officer of Zurich North America. Prior to joining Zurich, he served as president
of the commercial casualty division of the Berkshire Hathaway Group and served
as senior vice president with the American Home Insurance Company, a member of
the American International Group. He holds an aerospace engineering degree from
New York University.

Ms. O'Connor, 43, has been senior vice president, chief financial officer
and treasurer of Arch Capital Services Inc. since April 2002. From June 2000 to
April 2002, she was senior vice president, controller and treasurer of ACGL.
From 1995 to June 2000, Ms. O'Connor was senior vice president and controller of
the Company's reinsurance subsidiary. From 1986 until 1995, Ms. O'Connor served
at NAC Re Corp. in various capacities, including vice president and controller.
Prior to that, Ms. O'Connor was employed by General Re and the accounting firm
of Coopers & Lybrand. She holds a B.S. degree from Manhattan College.

Mr. Parker, 46, has been a managing director of VCC (Barbados) Limited,
which provides operational and management services to Barbados-based companies,
since 1996. He previously served as a vice president and a director of various
Barbados and Cayman Islands-based subsidiaries of Cott Corporation from 1995
through 2000.

Mr. Vollaro, 58, has been executive vice president and chief financial
officer of ACGL since January 2002 and treasurer of ACGL since May 2002. Prior
to joining us, Mr. Vollaro acted as an independent consultant in the insurance
industry since March 2000. Prior to March 2000, Mr. Vollaro was president and
chief operating officer of W.R. Berkley Corporation from January 1996 and a
director from September 1995 until March 2000. Mr. Vollaro was chief executive
officer of Signet Star Holdings, Inc., a joint venture between W.R. Berkley
Corporation and General Re Corporation, from July 1993 to December 1995. Mr.
Vollaro served as executive vice president of W.R. Berkley Corporation from 1991
until 1993, chief financial officer and treasurer of W.R. Berkley Corporation
from

1983 to 1993 and senior vice president of W.R. Berkley Corporation from 1983 to
1991. He holds a B.S. degree from Long Island University.

Mr. Worme, 50, has practiced law at the Barbados-based law firm of
Fitzwilliam, Stone & Alcazar since 1978, where he has been a partner since 1980.

REQUIRED VOTE

The affirmative vote of a majority of the voting power of all of our shares
represented at the annual general meeting, voting together as a single class,
will be required for the election of Designated Company Directors.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF THE
DESIGNATED COMPANY DIRECTORS INDICATED ABOVE.

PROPOSAL 3 -- RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS

The Board of Directors proposes and recommends that the shareholders ratify
the selection of the firm of PricewaterhouseCoopers LLP to serve as independent
accountants of ACGL for the year ending December 31, 2003.
PricewaterhouseCoopers LLP has served as ACGL's independent accountants from our
inception in June 1995 to the present. Unless otherwise directed by the
shareholders, proxies will be voted for approval of the selection of
PricewaterhouseCoopers LLP to audit our consolidated financial statements for
the year ending December 31, 2003. A representative of PricewaterhouseCoopers
LLP will attend the annual general meeting and will have an opportunity to make
a statement and respond to appropriate questions.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following summarizes the fees billed to us by PricewaterhouseCoopers
LLP for professional services rendered in 2002 and 2001:

2002 2001
---- ----

Audit Fees(1) $ 1,035,225 $ 317,000
Audit-Related Fees(2) 94,195 263,400
Tax Fees(3) 528,208 320,306
All Other Fees(4) 0 0
------------ ------------
$ 1,657,628 $ 900,706
============ ============

-------------

(1) Audit Fees consisted primarily of fees for the audit of our annual
financial statements, review of our financial statements included in our
quarterly reports on Form 10-Q, statutory audits for our insurance
subsidiaries and review of SEC registration statements.

(2) Audit-Related Fees consisted primarily of fees for services provided in
connection with the purchase price adjustments relating to the November
2001 capital infusion. In 2002, Audit-Related Fees also included fees for
risk management and internal control advisory services.

(3) Tax Fees consisted primarily of fees for tax compliance, tax advice and tax
planning.

(4) All Other Fees consist of fees for other services not described in notes
(1), (2), and (3) above.

The audit committee has considered whether the provision of these services
is compatible with maintaining PricewaterhouseCoopers LLP's independence. From
and after August 2002, the audit committee has approved all audit and
permissible non-audit services performed for us by PricewaterhouseCoopers LLP,
our principal accountants. Prior to engagement, the audit committee pre-approves
these services by category of service. The fees are budgeted and the audit
committee requires the independent accountants and management to report actual
fees com-

pared to the budget periodically throughout the year by category of service.
During the year, circumstances may arise when it may become necessary to engage
the independent accountants for additional services not contemplated in the
original pre-approval. In those instances, the audit committee requires specific
pre-approval before engaging the independent accountants. The audit committee
may delegate pre-approval authority to one or more of its independent members.
The member to whom such authority is delegated must report, for informational
purposes only, any pre-approval decisions to the audit committee at it next
scheduled meeting.

REQUIRED VOTE

The affirmative vote of a majority of the voting power of all of our shares
represented at the annual general meeting, voting together as a single class,
will be required for the ratification of the selection of PricewaterhouseCoopers
LLP as the Company's independent accountants for the year ending December 31,
2003.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE RATIFICATION OF
THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S INDEPENDENT
ACCOUNTANTS FOR THE YEAR ENDING DECEMBER 31, 2003.

SHAREHOLDER PROPOSALS FOR THE 2004 ANNUAL GENERAL MEETING

All proposals of securityholders intended to be presented at the 2004
annual general meeting of shareholders must be received by the Company not later
than December 17, 2003 for inclusion in our 2004 proxy statement and form of
proxy relating to the 2004 annual general meeting. Upon timely receipt of any
such proposal, we will determine whether or not to include such proposal in the
proxy statement and proxy in accordance with applicable regulations and
provisions governing the solicitation of proxies. Proposals should be addressed
to Corporate Secretary, Arch Capital Group Ltd., Wessex House, 3rd Floor, 45
Reid Street, Hamilton HM 12 Bermuda.

For any proposal that is not submitted for inclusion in next year's proxy
statement (as described in the preceding paragraph) but is instead sought to be
presented directly at next year's annual general meeting, the rules of the SEC
permit management to vote proxies in its discretion if we do not receive notice
of the proposal on or before February 24, 2004. Notices of intention to present
proposals at next year's annual general meeting should be addressed to Corporate
Secretary, Arch Capital Group Ltd., Wessex House, 3rd Floor, 45 Reid Street,
Hamilton HM 12 Bermuda.

In addition, our bye-laws provide that any shareholder desiring to make a
proposal or nominate a director at an annual general meeting must provide
written notice of such proposal or nomination to the secretary of the Company at
least 50 days prior to the date of the meeting at which such proposal or
nomination is proposed to be voted upon (or, if less than 55 days' notice of an
annual general meeting is given, shareholder proposals and nominations must be
delivered no later than the close of business of the seventh day following the
day notice was mailed). Our bye-laws require that notices of shareholder
proposals or nominations set forth certain information with respect to each
proposal or nomination and the shareholder making such proposal or nomination.

A shareholder proponent must be a shareholder of the Company who was a
shareholder of record both at the time of giving of notice and at the time of
the meeting and who is entitled to vote at the meeting.

SHAREHOLDERS ARE ENTITLED TO RECEIVE, UPON WRITTEN REQUEST AND WITHOUT
CHARGE, A COPY OF OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
2002. PLEASE DIRECT SUCH REQUESTS TO CORPORATE SECRETARY, ARCH CAPITAL GROUP
LTD., WESSEX HOUSE, 3rd FLOOR, 45 REID STREET, HAMILTON HM 12 BERMUDA.

ANNUAL GENERAL MEETING OF SHAREHOLDERS OF

ARCH CAPITAL GROUP LTD.

MAY 21, 2003

Please vote, date and
sign below and return
promptly in the
enclosed envelope.

Please detach

--------------------------------------------------------------------------------
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER(S).
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE
PROPOSALS SET FORTH BELOW. PLEASE MARK YOUR VOTE IN BLUE OR
BLACK INK AS SHOWN HERE /X/
--------------------------------------------------------------------------------

1. To re-elect the nominees listed as Class II Directors FOR AGAINST ABSTAIN
of the Company for a term of three years. 2. To elect Peter A. Appel, Graham B. Collis, / / / / / /
Dwight R. Evans, Marc Grandisson, Paul B.
NOMINEES: Ingrey, Constantine Iordanou, Debra M.
/ / FOR ALL NOMINEES - Peter A. Appel O'Connor, Steven K. Parker, John D. Vollaro
- Constantine Iordanou and Robert C. Worme as Designated Company
/ / WITHHOLD AUTHORITY - James J. Meenaghan Directors so that they may be elected
FOR ALL NOMINEES - John M. Pasquesi directors of certain of our non-U.S.
subsidiaries.
/ / FOR ALL EXCEPT
(See instructions below) 3. To ratify the selection of
PricewaterhouseCoopers LLP as the Company's / / / / / /
INSTRUCTION: To withhold authority to vote for any independent accountants for the fiscal year
individual nominee(s), mark "FOR ALL EXCEPT" ending December 31, 2003.
and fill in the circle next to each nominee
you wish to withhold, as shown here: -
The undersigned hereby acknowledges receipt of the proxy statement and
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2002, and hereby revokes all previously granted proxies.

To change the address on your account, please check the box at right
and indicate your new address in the address space above. Please note
that changes to the registered name(s) on the account may not be
submitted via this method. / /

Signature of Shareholder________________________________________ Date:
__________, 2003 Signature of Shareholder
________________________________ Date:_____________, 2003

NOTE: This proxy must be signed exactly as the name appears hereon. When
shares are held jointly, each holder should sign. When signing as
executor, administrator, attorney, trustee or guardian, please give
full title as such. If a corporation, please sign full corporate
name by duly authorized officer, giving full title as such. If a
partnership, please sign in partnership name by authorized person.

ARCH CAPITAL GROUP LTD.

PROXY CARD FOR ANNUAL GENERAL MEETING OF

SHAREHOLDERS ON MAY 21, 2003

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF ARCH CAPITAL GROUP
LTD. (THE "COMPANY"). The undersigned hereby appoints Peter A. Appel and John D.
Vollaro as proxies, each with full power of substitution, to represent the
undersigned and to vote all common shares of the Company held of record by the
undersigned on April 11, 2003, or which the undersigned would otherwise be
entitled to vote at the annual general meeting to be held on May 21, 2003 and
any adjournment thereof, upon all matters that may properly come before the
annual general meeting. ALL SHARES ELIGIBLE TO BE VOTED BY THE UNDERSIGNED WILL
BE VOTED BY THE PROXIES NAMED ABOVE IN THE MANNER SPECIFIED ON THE REVERSE SIDE
OF THIS CARD, AND SUCH PROXIES ARE AUTHORIZED TO VOTE IN THEIR DISCRETION ON
SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING.

(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)