ARCH CAPITAL GROUP LTD (Form: 10-Q, Received: 11/12/2003 11:22:01)

Notary Public

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2003
Or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period to

Commission file number: 0-26456

ARCH CAPITAL GROUP LTD.
(Exact name of registrant as specified in its charter)

Bermuda (State or other jurisdiction of incorporation or organization)		Not Applicable (I.R.S. Employer Identification No.)
Wessex House, 45 Reid Street Hamilton HM 12 Bermuda (Address of principal executive offices)		(Zip Code)
Registrant's telephone number, including area code: (441) 278-9250



		(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý No o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes ý No o

Indicate the number of shares outstanding of each of the issuer's classes of common shares.

Class		Outstanding at October 31, 2003
Common Shares, $0.01 par value		28,157,839

ARCH CAPITAL GROUP LTD.

INDEX

		Page No.
*PART I. Financial Information*
Item 1—Consolidated Financial Statements
Report of Independent Accountants		2
Consolidated Balance Sheets September 30, 2003 and December 31, 2002		3
Consolidated Statements of Income For the three and nine month periods ended September 30, 2003 and 2002		4
Consolidated Statements of Changes in Shareholders' Equity For the nine month periods ended September 30, 2003 and 2002		5
Consolidated Statements of Comprehensive Income For the nine month periods ended September 30, 2003 and 2002		6
Consolidated Statements of Cash Flows For the nine month periods ended September 30, 2003 and 2002		7
Notes to Consolidated Financial Statements		8
Item 2—Management's Discussion and Analysis of Financial Condition And Results of Operations		25
Item 3—Quantitative and Qualitative Disclosures About Market Risk		54
Item 4—Controls and Procedures		54
*PART II. Other Information*
Item 1—Legal Proceedings		55
Item 5—Other Information		55
Item 6—Exhibits and Reports on Form 8-K		55

Report of Independent Accountants

To the Board of Directors and Shareholders of
Arch Capital Group Ltd.:

We have reviewed the accompanying consolidated balance sheet of Arch Capital Group Ltd. and its subsidiaries as of September 30, 2003, and the related consolidated statements of income for each of the three and nine month periods ended September 30, 2003 and 2002, and the consolidated statements of comprehensive income, changes in shareholders' equity, and cash flows for each of the nine month periods ended September 30, 2003 and 2002. These interim financial statements are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.

We previously audited in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of December 31, 2002, and the related consolidated statements of income, comprehensive income, changes in shareholders' equity, and of cash flows for the year then ended (not presented herein), and in our report dated February 19, 2003, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of December 31, 2002, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

/s/ PricewaterhouseCoopers LLP
New York, New York
October 27, 2003

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

	September 30, 2003			December 31, 2002
	(Unaudited)
Assets
Investments:
Fixed maturities available for sale, at fair value (amortized cost: 2003, $2,830,110; 2002, $1,334,637)	$	2,884,031		$	1,382,104
Short-term investments available for sale, at fair value		397,641			480,541
Privately held securities (cost: 2003, $26,987; 2002, $31,630)		30,486			31,536

Total investments		3,312,158			1,894,181

Cash		55,888			91,717
Accrued investment income		23,146			17,127
Premiums receivable		596,137			343,716
Funds held by reinsureds		184,902			58,351
Unpaid losses and loss adjustment expenses recoverable		353,062			211,100
Paid losses and loss adjustment expenses recoverable		22,903			14,462
Prepaid reinsurance premiums		228,476			120,191
Goodwill and intangible assets		35,882			28,867
Deferred income tax asset		15,450			16,514
Deferred acquisition costs, net		281,770			148,960
Other assets		93,179			46,142

Total Assets	$	5,202,953		$	2,991,328

Liabilities
Reserve for losses and loss adjustment expenses	$	1,555,256		$	592,432
Unearned premiums		1,458,364			761,310
Reinsurance balances payable		110,931			89,191
Revolving credit agreement borrowings		200,000			—
Investment accounts payable		91,248			45,960
Other liabilities		150,915			91,191

Total Liabilities		3,566,714			1,580,084

Commitments and Contingencies
Shareholders' Equity
Preferred shares ($0.01 par value, 50,000,000 shares authorized, issued: 2003 and 2002, 38,844,665)		388			388
Common shares ($0.01 par value, 200,000,000 shares authorized, issued: 2003, 28,137,786; 2002, 27,725,334)		281			277
Additional paid-in capital		1,359,332			1,347,165
Deferred compensation under share award plan		(18,079	)		(25,290	)
Retained earnings		244,229			47,372
Accumulated other comprehensive income consisting of unrealized appreciation in value of investments, net of deferred income tax		50,088			41,332

Total Shareholders' Equity		1,636,239			1,411,244

Total Liabilities and Shareholders' Equity	$	5,202,953		$	2,991,328

See Notes to Consolidated Financial Statements

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003			2002
	(Unaudited)						(Unaudited)
Revenues
Net premiums written	$	774,167		$	318,684		$	2,111,032		$	822,420
Increase in unearned premiums		(165,211	)		(134,705	)		(588,769	)		(457,455	)

Net premiums earned		608,956			183,979			1,522,263			364,965
Net investment income		20,542			14,869			58,752			35,647
Net realized investment gains (losses)		11,366			(836	)		21,454			175
Fee income		5,489			2,437			16,099			7,925
Other income		546			185			2,271			1,761

Total revenues		646,899			200,634			1,620,839			410,473
Expenses
Losses and loss adjustment expenses		391,974			120,120			986,435			250,964
Acquisition expenses		115,851			39,027			289,623			64,092
Other operating expenses		47,202			18,562			119,276			44,523
Net foreign exchange (gains) losses		(3,708	)		726			(6,519	)		(2,518	)
Non-cash compensation		3,899			29,528			11,661			42,292

Total expenses		555,218			207,963			1,400,476			399,353
Income (Loss) Before Income Taxes and Extraordinary Item		91,681			(7,329	)		220,363			11,120
Income tax expense (benefit)		9,910			392			24,322			(4,351	)

Income (Loss) Before Extraordinary Item		81,771			(7,721	)		196,041			15,471
Extraordinary gain—excess of fair value of net assets acquired over cost (net of $0 tax)		816			—			816			—

Net Income (Loss)	$	82,587		$	(7,721	)	$	196,857		$	15,471

Net Income (Loss) Per Share Data
Basic:
Income (loss) before extraordinary item	$	3.12		$	(0.36	)	$	7.50		$	0.84
Extraordinary gain	$	0.03			—		$	0.03			—

Net income (loss)	$	3.15		$	(0.36	)	$	7.53		$	0.84

Diluted:
Income (loss) before extraordinary item	$	1.21		$	(0.36	)	$	2.90		$	0.27
Extraordinary gain	$	0.01			—		$	0.01			—

Net income (loss)	$	1.22		$	(0.36	)	$	2.91		$	0.27

Average Shares Outstanding
Basic		26,255,775			21,497,224			26,153,718			18,310,714
Diluted		67,774,722			21,497,224			67,539,330			57,200,973

See Notes to Consolidated Financial Statements

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)

	Nine Months Ended September 30,
	2003			2002
	(Unaudited)
Preference Shares
Balance at beginning of year	$	388		$	357
Preference shares issued		—			9

Balance at end of period		388			366

Common Shares
Balance at beginning of year		277			135
Common shares issued		4			141

Balance at end of period		281			276

Additional Paid-in Capital
Balance at beginning of year		1,347,165			1,039,887
Common shares issued		5,666			318,530
Exercise of stock options		6,068			—
Common shares retired		(794	)		—
Other		1,227			240

Balance at end of period		1,359,332			1,358,657

Deferred Compensation Under Share Award Plan
Balance at beginning of year		(25,290	)		(8,230	)
Restricted common shares issued		(4,762	)		(65,306	)
Deferred compensation expense recognized		11,973			42,052

Balance at end of period		(18,079	)		(31,484	)

Retained Earnings (Deficit)
Balance at beginning of year		47,372			(11,610	)
Net income		196,857			15,471

Balance at end of period		244,229			3,861

Accumulated Other Comprehensive Income
Unrealized Appreciation (Decline) in Value of Investments, Net of Deferred Income Tax
Balance at beginning of year		41,332			(170	)
Change in unrealized appreciation (decline)		8,756			39,402

Balance at end of period		50,088			39,232

Total Shareholders' Equity	$	1,636,239		$	1,370,908

See Notes to Consolidated Financial Statements

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)

			Nine Months Ended September 30,
			2003			2002
			(Unaudited)
Comprehensive Income
Net income			$	196,857		$	15,471
Other comprehensive income, net of deferred income tax
	Unrealized appreciation in value of investments:
		Unrealized holding gains arising during period		28,071			37,897
		Reclassification of net realized (gains) losses, net of tax, included in net income		(19,315	)		1,505

	Other comprehensive income			8,756			39,402

Comprehensive Income			$	205,613		$	54,873

See Notes to Consolidated Financial Statements

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

				Nine Months Ended September 30,
				2003			2002
				(Unaudited)
Operating Activities
Net income				$	196,857		$	15,471
	Adjustments to reconcile net income to net cash provided by operating activities:
		Net realized investment gains			(21,454	)		(175	)
		Provision for non-cash compensation			11,661			42,292
		Net unrealized foreign exchange gains			(4,859	)		(911	)
		Excess of fair value of net assets acquired over cost			(816	)		—
		Changes in:
			Reserve for losses and loss adjustment expenses, net of unpaid losses and loss adjustment expenses recoverable		812,322			202,097
			Unearned premiums, net of prepaid reinsurance premiums		588,769			457,164
			Premiums receivable		(250,422	)		(230,089	)
			Deferred acquisition costs, net		(132,810	)		(99,495	)
			Funds held by reinsureds		(116,239	)		(50,068	)
			Reinsurance balances payable		21,740			15,620
			Accrued investment income		(5,986	)		(9,024	)
			Paid losses and loss adjustment expenses recoverable		(8,441	)		(17,354	)
			Deferred income tax asset		(1,934	)		(1,267	)
			Other liabilities		65,032			36,292
			Loan to Chairman		—			(13,530	)
			Other items, net		(7,331	)		(4,789	)

Net Cash Provided By Operating Activities					1,146,089			342,234

Investing Activities
Purchases of fixed maturity investments					(3,595,697	)		(1,205,127	)
Release of escrowed assets					—			(18,833	)
Sales of fixed maturity investments					2,099,515			391,686
Sales of equity securities					7,801			13,726
Net sales of short-term investments					134,119			278,246
Acquisitions, net of cash					(11,774	)		(2,513	)
Purchases of furniture, equipment and other					(19,930	)		(5,222	)

Net Cash Used For Investing Activities					(1,385,966	)		(548,037	)

Financing Activities
Proceeds from common shares issued					4,843			253,459
Repurchase of common shares					(795	)		—
Revolving credit agreement borrowings					200,000			—
Debt retirement and other					—			138

Net Cash Provided By Financing Activities					204,048			253,597

(Decrease) increase in cash					(35,829	)		47,794
Cash beginning of year					91,717			9,970

Cash end of period				$	55,888		$	57,764

Income taxes paid, net				$	28,399		$	2,889

Interest paid					—			—

See Notes to Consolidated Financial Statements

ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. General

Arch Capital Group Ltd. ("ACGL") is a Bermuda public limited liability company which provides insurance and reinsurance on a worldwide basis through its wholly owned subsidiaries.

The interim consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States ("GAAP") and include the accounts of ACGL and its subsidiaries (together with ACGL, the "Company"). All significant intercompany transactions and balances have been eliminated in consolidation. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions. In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect all adjustments necessary for a fair statement of results on an interim basis. The results of any interim period are not necessarily indicative of the results for a full year or any future periods.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations; however, management believes that the disclosures are adequate to make the information presented not misleading. This report should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2002, including the Company's audited consolidated financial statements and related notes and the section entitled "Business—Risk Factors."

To facilitate period-to-period comparisons, certain amounts in the 2002 consolidated financial statements have been reclassified to conform to the 2003 presentation. Such reclassifications had no effect on the Company's consolidated net income, shareholders' equity or cash flows.

2. Stock Options

The Company has adopted the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"), and related interpretations in accounting for its employee stock options. Accordingly, under APB No. 25, compensation expense for stock option grants is recognized by the Company to the extent that the fair value of the underlying stock exceeds the exercise price of the option at the measurement date. As provided under Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," the Company has elected to continue to account for stock-based compensation in accordance with APB No. 25 and has provided the required additional pro forma disclosures.

2. Stock Options (continued)

If compensation expense for stock-based employee compensation plans had been determined using the fair value recognition provisions of SFAS No. 123, the Company's net income and earnings (loss) per share would have instead been reported as the pro forma amounts indicated below:

		Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except share data)		Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except share data)		2003			2002			2003			2002
		(Unaudited)						(Unaudited)
Net income (loss), as reported		$	82,587		$	(7,721	)	$	196,857		$	15,471
Total stock-based employee compensation expense under fair value method, net of income tax			(1,896	)		(3,349	)		(5,188	)		(11,148	)

Pro forma net income (loss)		$	80,691		$	(11,070	)	$	191,669		$	4,323

Earnings (loss) per share—basic:
	As reported	$	3.15		$	(0.36	)	$	7.53		$	0.84
	Pro forma	$	3.07		$	(0.51	)	$	7.33		$	0.24
Earnings (loss) per share—diluted:
	As reported	$	1.22		$	(0.36	)	$	2.91		$	0.27
	Pro forma	$	1.19		$	(0.51	)	$	2.84		$	0.08

3. Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities—an interpretation of ARB No. 51" ("FIN 46"), which requires the consolidation of certain entities considered to be variable interest entities ("VIEs"). An entity is considered to be a VIE when it has equity investors which lack the characteristics of a controlling financial interest or its capital is insufficient to permit it to finance its activities without additional subordinated financial support. Consolidation of a VIE by an investor is required when it is determined that the investor will absorb a majority of the VIE's expected losses or residual returns if they occur. FIN 46 provides certain exceptions to these rules, including qualifying special purpose entities subject to the requirements of SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." Certain ceding companies may meet the definition of a VIE due to the protection provided to the ceding company's equity investors from the absorption of expected losses. VIEs created after January 31, 2003 must be consolidated immediately. In October 2003, the FASB approved delaying the effective date of FIN 46 to October 1, 2003 from July 1, 2003 for VIE's that existed prior to February 1, 2003. The Company believes that the adoption of FIN 46 will not have a material impact on its consolidated financial statements.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS No. 149 is effective for contracts entered into or modified after September 30, 2003 and for hedging relationships designated after September 30, 2003. The Company currently does not utilize derivative instruments and therefore believes that the adoption of SFAS No. 149 will not have a material impact on its consolidated financial statements.

3. Accounting Pronouncements (continued)

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150 establishes standards for the classification and measurement of financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003 and otherwise is effective beginning in the 2003 third quarter. The Company currently does not issue financial instruments covered within the scope of SFAS No. 150 and therefore believes that the adoption of this standard will not have a material impact on its consolidated financial statements.

In July 2003, the Accounting Standards Executive Committee issued Statement of Position 03-1, "Accounting and Reporting by Insurance Enterprises for Certain Non-Traditional Long-Duration Contracts and for Separate Accounts" ("SOP 03-1"), which provides guidance on accounting and reporting by insurance enterprises for certain non-traditional long-duration contracts and for separate accounts. The provisions of SOP 03-1 are effective for financial statements for fiscal years beginning after December 15, 2003. The Company is currently evaluating the effects of implementing SOP 03-1; however, the Company does not expect that its adoption will have a material effect on the Company's financial condition and results of operations.

4. Segment Information

The determination of the Company's business segments is based on how the Company monitors the performance of its underwriting operations. The Company classifies its businesses into two underwriting segments—reinsurance and insurance—and a corporate and other segment (non-underwriting). The Company does not manage its assets by segment and, accordingly, investment income is not allocated to each underwriting segment. In addition, other revenue and expense items are not evaluated by segment. Management measures segment performance based on underwriting income or loss. The accounting policies of the segments are the same as those used for the preparation of the Company's consolidated financial statements. Inter-segment insurance business is allocated to the segment accountable for the underwriting results in accordance with SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information."

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

The insurance segment consists of the Company's insurance underwriting subsidiaries which primarily write on a direct basis. The insurance segment consists of eight profit centers, including casualty, construction and surety, executive assurance, healthcare, professional liability, programs, property, and other (primarily non-standard automobile, collateralized protection business and accident and health and corporate risk programs).

The corporate and other segment (non-underwriting) includes net investment income, other fee income and other expenses incurred by the Company, net realized investment gains or losses, net foreign exchange gains or losses and non-cash compensation. The corporate and other segment also includes the results of the Company's merchant banking operations.

4. Segment Information (continued)

The following table sets forth an analysis of the Company's underwriting income by segment, together with a reconciliation of underwriting income to net income for the three months ended September 30, 2003:

	Three Months Ended September 30, 2003
(in thousands)	Reinsurance			Insurance			Total
	(Unaudited)
Gross premiums written (1)	$	411,443		$	558,863		$	928,243
Net premiums written (1)		397,418			376,749			774,167
Net premiums earned	$	348,883		$	260,073		$	608,956
Policy-related fee income		—			3,583			3,583
Other underwriting-related fee income		1,369			—			1,369
Losses and loss adjustment expenses		(223,419	)		(168,555	)		(391,974	)
Acquisition expenses, net		(79,011	)		(36,840	)		(115,851	)
Other operating expenses		(8,862	)		(33,654	)		(42,516	)

Underwriting income	$	38,960		$	24,607			63,567

Net investment income								20,542
Net realized investment gains								11,366
Other fee income, net of related expenses								537
Other income								546
Other expenses								(4,686	)
Net foreign exchange gains								3,708
Non-cash compensation								(3,899	)

Income before income taxes and extraordinary item								91,681
Income tax expense								(9,910	)

Income before extraordinary item								81,771
Extraordinary gain, net of $0 tax expense								816

Net income							$	82,587

Underwriting Ratios
Loss ratio		64.0	%		64.8	%		64.4	%
Acquisition expense ratio (2)		22.6	%		12.8	%		18.4	%
Other operating expense ratio		2.5	%		12.9	%		7.0	%

Combined ratio		89.1	%		90.5	%		89.8	%

(1): Gross premiums written by the insurance segment have been ceded to, and are also included in, the reinsurance segment's gross premiums written. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above, due to the elimination of intersegment transactions in the total. Due to such cessions, the reinsurance segment results include $42.1 million of gross and net premiums written assumed from the insurance segment.
(2): The acquisition expense ratio is adjusted to include policy-related fee income.

4. Segment Information (continued)

The following table sets forth an analysis of the Company's underwriting income or loss by segment, together with a reconciliation of underwriting income to net loss for the three months ended September 30, 2002:

	Three Months Ended September 30, 2002
(in thousands)	Reinsurance			Insurance			Total
	(Unaudited)
Gross premiums written (1)	$	215,326		$	208,425		$	406,863
Net premiums written (1)		204,530			114,154			318,684
Net premiums earned	$	143,497		$	40,482			183,979
Policy-related fee income		—			2,570			2,570
Losses and loss adjustment expenses		(90,216	)		(29,904	)		(120,120	)
Acquisition expenses, net		(36,212	)		(2,815	)		(39,027	)
Other operating expenses		(4,108	)		(10,903	)		(15,011	)

Underwriting income (loss)	$	12,961		$	(570	)		12,391

Net investment income								14,869
Net realized investment losses								(836	)
Other fee income, net of related expenses								(133	)
Other income								185
Other expenses								(3,551	)
Net foreign exchange losses								(726	)
Non-cash compensation								(29,528	)

Loss before income taxes								(7,329	)
Income tax expense								(392	)

Net loss							$	(7,721	)

Underwriting Ratios
Loss ratio		62.9	%		73.9	%		65.3	%
Acquisition expense ratio (2)		25.2	%		0.6	%		19.8	%
Other operating expense ratio		2.9	%		26.9	%		8.2	%

Combined ratio		91.0	%		101.4	%		93.3	%

(1): Gross premiums written by the insurance segment have been ceded to, and are also included in, the reinsurance segment's gross premiums written. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above, due to the elimination of intersegment transactions in the total. Due to such cessions, the reinsurance segment results include $16.9 million of gross and net premiums written assumed from the insurance segment.
(2): The acquisition expense ratio is adjusted to include policy-related fee income.

4. Segment Information (continued)

The following table sets forth an analysis of the Company's underwriting income by segment, together with a reconciliation of underwriting income to net income for the nine months ended September 30, 2003:

	Nine Months Ended September 30, 2003
(in thousands)	Reinsurance			Insurance			Total
	(Unaudited)
Gross premiums written (1)	$	1,311,142		$	1,283,776		$	2,464,348
Net premiums written (1)		1,268,374			842,658			2,111,032
Net premiums earned	$	932,334		$	589,929		$	1,522,263
Policy-related fee income		—			10,358			10,358
Other underwriting-related fee income		5,097			—			5,097
Losses and loss adjustment expenses		(591,131	)		(395,304	)		(986,435	)
Acquisition expenses, net		(217,379	)		(72,244	)		(289,623	)
Other operating expenses		(22,644	)		(86,145	)		(108,789	)

Underwriting income	$	106,277		$	46,594			152,871

Net investment income								58,752
Net realized investment gains								21,454
Other fee income, net of related expenses								644
Other income								2,271
Other expenses								(10,487	)
Net foreign exchange gains								6,519
Non-cash compensation								(11,661	)

Income before income taxes and extraordinary item								220,363
Income tax expense								(24,322	)

Income before extraordinary item								196,041
Extraordinary gain, net of $0 tax expense								816

Net income							$	196,857

Underwriting Ratios
Loss ratio		63.4	%		67.0	%		64.8	%
Acquisition expense ratio (2)		23.3	%		10.5	%		18.3	%
Other operating expense ratio		2.4	%		14.6	%		7.1	%

Combined ratio		89.1	%		92.1	%		90.2	%

(1): Gross premiums written by the insurance segment have been ceded to, and are also included in, the reinsurance segment's gross premiums written. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above, due to the elimination of intersegment transactions in the total. Due to such cessions, the reinsurance segment results include $130.6 million of gross and net premiums written assumed from the insurance segment.
(2): The acquisition expense ratio is adjusted to include policy-related fee income.

4. Segment Information (continued)

The following table sets forth an analysis of the Company's underwriting income or loss by segment, together with a reconciliation of underwriting income or loss to net income for the nine months ended September 30, 2002:

	Nine Months Ended September 30, 2002
(in thousands)	Reinsurance			Insurance			Total
	(Unaudited)
Gross premiums written (1)	$	660,526		$	358,693		$	965,313
Net premiums written (1)		646,010			176,410			822,420
Net premiums earned	$	295,360		$	69,605		$	364,965
Policy-related fee income		—			6,505			6,505
Losses and loss adjustment expenses		(198,221	)		(52,743	)		(250,964	)
Acquisition expenses, net		(59,699	)		(4,393	)		(64,092	)
Other operating expenses		(10,241	)		(22,993	)		(33,234	)

Underwriting income (loss)	$	27,199		$	(4,019	)		23,180

Net investment income								35,647
Net realized investment gains								175
Other fee income, net of related expenses								(779	)
Other income								1,761
Other expenses								(9,090	)
Net foreign exchange gains								2,518
Non-cash compensation								(42,292	)
Income before income taxes								11,120
Income tax benefit								4,351

Net income							$	15,471

Underwriting Ratios
Loss ratio		67.1	%		75.8	%		68.8	%
Acquisition expense ratio (2)		20.2	%		(3.0	)%		15.7	%
Other operating expense ratio		3.5	%		33.0	%		9.1	%

Combined ratio		90.8	%		105.8	%		93.6	%

(1): Gross premiums written by the insurance segment have been ceded to, and are also included in, the reinsurance segment's gross premiums written. Accordingly, the sum of gross premiums written for each segment does not agree to the total gross premiums written as shown in the table above, due to the elimination of intersegment transactions in the total. Due to such cessions, the reinsurance segment results include $53.9 million of gross and net premiums written assumed from the insurance segment.
(2): The acquisition expense ratio is adjusted to include policy-related fee income.

4. Segment Information (continued)

Set forth below is summary information regarding net premiums written and earned by major line of business and by client location for the reinsurance segment for the three months ended September 30, 2003 and 2002:

		Three Months Ended September 30,
		2003					2002
REINSURANCE SEGMENT (in thousands)		Amount			% of Total		Amount		% of Total
		(Unaudited)
Major line of business:
	Net premiums written (1)
	Casualty	$	174,945		44.0	%	$	76,896	37.6	%
	Other specialty		107,638		27.1	%		38,341	18.7	%
	Property excluding property catastrophe		76,996		19.4	%		42,193	20.6	%
	Property catastrophe		21,872		5.5	%		23,105	11.3	%
	Marine and aviation		14,548		3.7	%		9,724	4.8	%
	Casualty clash		1,650		0.4	%		3,661	1.8	%
	Non-traditional		(231	)	(0.1	)%		10,610	5.2	%

	Total	$	397,418		100.0	%	$	204,530	100.0	%

	Net premiums earned
	Casualty	$	123,840		35.5	%	$	26,203	18.2	%
	Other specialty		83,984		24.1	%		35,796	24.9	%
	Property excluding property catastrophe		81,645		23.4	%		24,121	16.8	%
	Property catastrophe		24,408		7.0	%		24,341	17.0	%
	Marine and aviation		18,333		5.2	%		8,718	6.1	%
	Non-traditional		14,010		4.0	%		20,305	14.2	%
	Casualty clash		2,663		0.8	%		4,013	2.8	%

	Total	$	348,883		100.0	%	$	143,497	100.0	%

Client location:
	Net premiums written
	North America	$	233,577		58.8	%	$	137,008	67.0	%
	Europe		124,435		31.3	%		35,445	17.3	%
	Asia and Pacific		1,273		0.3	%		5,474	2.7	%
	Bermuda		26,711		6.7	%		16,782	8.2	%
	Other		11,422		2.9	%		9,821	4.8	%

	Total	$	397,418		100.0	%	$	204,530	100.0	%

(1): Reinsurance segment results include premiums written and earned assumed from the insurance segment of $42.1 million and $36.2 million, respectively, for the 2003 third quarter and $16.9 million and $11.4 million, respectively, for the 2002 third quarter.

4. Segment Information (continued)

Set forth below is summary information regarding net premiums written and earned by major line of business and by client location for the reinsurance segment for the nine months ended September 30, 2003 and 2002:

		Nine Months Ended September 30,
		2003				2002
REINSURANCE SEGMENT (in thousands)		Amount		% of Total		Amount		% of Total
		(Unaudited)
Major line of business:
	Net premiums written (1)
	Casualty	$	480,769	37.9	%	$	133,764	20.7	%
	Other specialty		311,579	24.6	%		139,790	21.6	%
	Property excluding property catastrophe		258,844	20.4	%		126,068	19.5	%
	Property catastrophe		93,982	7.4	%		102,135	15.8	%
	Marine and aviation		60,318	4.8	%		38,322	5.9	%
	Non-traditional		51,352	4.0	%		89,341	13.9	%
	Casualty clash		11,530	0.9	%		16,590	2.6	%

	Total	$	1,268,374	100.0	%	$	646,010	100.0	%

	Net premiums earned
	Casualty	$	314,448	33.7	%	$	45,347	15.4	%
	Property excluding property catastrophe		213,396	22.9	%		48,460	16.4	%
	Other specialty		204,572	21.9	%		68,770	23.3	%
	Property catastrophe		81,653	8.8	%		56,195	19.0	%
	Marine and aviation		55,604	6.0	%		18,730	6.3	%
	Non-traditional		52,461	5.6	%		47,768	16.2	%
	Casualty clash		10,200	1.1	%		10,090	3.4	%

	Total	$	932,334	100.0	%	$	295,360	100.0	%

Client location:
	Net premiums written
	North America	$	785,006	61.9	%	$	360,048	55.7	%
	Europe		355,099	28.0	%		196,891	30.5	%
	Bermuda		75,008	5.9	%		35,554	5.5	%
	Asia and Pacific		23,796	1.9	%		22,325	3.5	%
	Other		29,465	2.3	%		31,192	4.8	%

	Total	$	1,268,374	100.0	%	$	646,010	100.0	%

(1): Reinsurance segment results include premiums written and earned assumed from the insurance segment of $130.6 million and $97.7 million, respectively, for the nine months ended September 30, 2003 and $53.9 million and $22.0 million, respectively, for the nine months ended September 30, 2002.

4. Segment Information (continued)

Set forth below is summary information regarding net premiums written and earned by major line of business and by client location for the insurance segment for the three months ended September 30, 2003 and 2002:

		Three Months Ended September 30,
		2003				2002
INSURANCE SEGMENT (in thousands)		Amount		% of Total		Amount		% of Total
		(Unaudited)
Major line of business:
	Net premiums written (1)
	Programs	$	116,172	30.8	%	$	23,106	20.2	%
	Casualty		68,788	18.3	%		22,263	19.5	%
	Construction and surety		53,374	14.2	%		11,055	9.7	%
	Property		42,770	11.3	%		18,553	16.3	%
	Executive assurance		34,817	9.2	%		15,388	13.5	%
	Professional liability		28,850	7.7	%		5,492	4.8	%
	Healthcare		9,855	2.6	%		3,453	3.0	%
	Other		22,123	5.9	%		14,844	13.0	%

	Total	$	376,749	100.0	%	$	114,154	100.0	%

	Net premiums earned
	Programs	$	81,712	31.4	%	$	8,581	21.2	%
	Casualty		46,660	17.9	%		5,379	13.3	%
	Property		27,730	10.7	%		5,312	13.1	%
	Construction and surety		25,672	9.9	%		1,274	3.2	%
	Executive assurance		24,380	9.4	%		5,392	13.3	%
	Professional liability		21,428	8.2	%		1,593	3.9	%
	Healthcare		10,900	4.2	%		327	0.8	%
	Other		21,591	8.3	%		12,624	31.2	%

	Total	$	260,073	100.0	%	$	40,482	100.0	%

Client location:
	Net premiums written
	North America	$	368,308	97.8	%	$	113,650	99.6	%
	Other		8,441	2.2	%		504	0.4	%

	Total	$	376,749	100.0	%	$	114,154	100.0	%

(1): Insurance segment results exclude premiums written and earned ceded to the reinsurance segment of $42.1 million and $36.2 million, respectively, for the 2003 third quarter and $16.9 million and $11.4 million, respectively, for the 2002 third quarter.

4. Segment Information (continued)

Set forth below is summary information regarding net premiums written and earned by major line of business and by client location for the insurance segment for the nine months ended September 30, 2003 and 2002:

		Nine Months Ended September 30,
		2003				2002
INSURANCE SEGMENT (in thousands)		Amount		% of Total		Amount		% of Total
		(Unaudited)
Major line of business:
	Net premiums written (1)
	Programs	$	263,748	31.3	%	$	31,802	18.0	%
	Casualty		169,115	20.1	%		30,199	17.1	%
	Construction and surety		95,588	11.3	%		13,698	7.8	%
	Executive assurance		80,583	9.6	%		28,171	16.0	%
	Professional liability		77,538	9.2	%		7,630	4.3	%
	Property		77,511	9.2	%		23,683	13.4	%
	Healthcare		24,656	2.9	%		3,453	2.0	%
	Other		53,919	6.4	%		37,774	21.4	%

	Total	$	842,658	100.0	%	$	176,410	100.0	%

	Net premiums earned
	Programs	$	182,872	31.0	%	$	13,564	19.5	%
	Casualty		108,671	18.4	%		5,697	8.2	%
	Executive assurance		59,509	10.1	%		7,159	10.3	%
	Property		57,349	9.7	%		5,699	8.2	%
	Construction and surety		51,402	8.7	%		1,593	2.3	%
	Professional liability		44,555	7.6	%		1,910	2.7	%
	Healthcare		26,797	4.5	%		327	0.5	%
	Other		58,774	10.0	%		33,656	48.3	%

	Total	$	589,929	100.0	%	$	69,605	100.0	%

Client location:
	Net premiums written
	North America	$	825,939	98.0	%	$	174,800	99.1	%
	Other		16,719	2.0	%		1,610	0.9	%

	Total	$	842,658	100.0	%	$	176,410	100.0	%

(1): Insurance segment results exclude premiums written and earned ceded to the reinsurance segment of $130.6 million and $97.7 million, respectively, for the nine months ended September 30, 2003 and $53.9 million and $22.0 million, respectively, for the nine months ended September 30, 2002.

5. Reinsurance

In the normal course of business, the Company's insurance subsidiaries cede a substantial portion of their premium through pro rata, excess of loss and facultative reinsurance agreements. The Company's reinsurance subsidiaries are currently retaining substantially all of their assumed reinsurance premiums written. However, the Company's reinsurance subsidiaries participate in "common account" retrocessional arrangements for certain pro rata treaties. Such arrangements reduce the effect of individual or aggregate losses to all companies participating on such treaties, including the reinsurers, such as the Company's reinsurance subsidiaries, and the ceding company.

Reinsurance recoverables are recorded as assets, predicated on the reinsurers' ability to meet their obligations under the reinsurance agreements. If the reinsurers are unable to satisfy their obligations under the agreements, the Company's insurance and reinsurance subsidiaries would be liable for such defaulted amounts.

The following table sets forth the effects of reinsurance on the Company's reinsurance and insurance subsidiaries with unaffiliated reinsurers:

		Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)		2003			2002			2003			2002
		(Unaudited)						(Unaudited)
Premiums Written:
	Direct	$	490,232		$	195,803		$	1,161,912		$	343,475
	Assumed		438,011			211,060			1,302,436			621,838
	Ceded		(154,076	)		(88,179	)		(353,316	)		(142,893	)

	Net	$	774,167		$	318,684		$	2,111,032		$	822,420

Premiums Earned:
	Direct	$	372,791		$	89,563		$	871,866		$	183,214
	Assumed		366,339			142,272			940,590			287,432
	Ceded		(130,174	)		(47,856	)		(290,193	)		(105,681	)

	Net	$	608,956		$	183,979		$	1,522,263		$	364,965

Losses and Loss Adjustment Expenses Incurred:
	Direct	$	231,804		$	73,831		$	614,697		$	168,214
	Assumed		223,572			88,172			579,243			189,898
	Ceded		(63,402	)		(41,883	)		(207,505	)		(107,148	)

	Net	$	391,974		$	120,120		$	986,435		$	250,964

6. Deposit Accounting

Certain assumed reinsurance contracts are deemed, for financial reporting purposes, not to transfer insurance risk, and are accounted for using the deposit method of accounting. For those contracts that contain an element of underwriting risk, the estimated profit margin is deferred and amortized over the contract period and such amount is included in the Company's underwriting results. When the estimated profit margin is explicit, the margin is reflected as fee income, and when the estimated profit margin is implicit it is reflected as an offset to incurred losses. The Company recorded $7.5 million on such contracts for the nine months ended September 30, 2003 in its underwriting results, of which $5.1 million was recorded as fee income and $2.4 million was recorded as an offset to incurred losses. On a notional basis, the amount of "premiums" attaching to such contracts was $149.2 million for the nine months ended September 30, 2003.

7. Investment Information

The following tables summarize the Company's fixed maturities and equity securities:

		September 30, 2003
(in thousands)		Estimated Fair Value and Carrying Value		Gross Unrealized Gains		Gross Unrealized (Losses)			Amortized Cost
		(Unaudited)
Fixed maturities:
	U.S. government and government agencies	$	1,048,870	$	10,364	$	(6	)	$	1,038,512
	Corporate bonds		1,092,475		35,205		(1,108	)		1,058,378
	Mortgage backed securities		115,992		3,591		—			112,401
	Asset backed securities		577,023		5,745		(734	)		572,012
	Municipal bonds		49,671		864		—			48,807

			2,884,031		55,769		(1,848	)		2,830,110
Equity securities:
	Privately held		30,486		3,499		—			26,987

	Total	$	2,914,517	$	59,268	$	(1,848	)	$	2,857,097

		December 31, 2002
(in thousands)		Estimated Fair Value and Carrying Value		Gross Unrealized Gains		Gross Unrealized (Losses)			Amortized Cost
Fixed maturities:
	U.S. government and government agencies	$	179,322	$	5,242	$	(4	)	$	174,084
	Corporate bonds		949,003		33,305		(708	)		916,406
	Mortgage backed securities		228,794		7,695		—			221,099
	Asset backed securities		24,985		1,937		—			23,048

			1,382,104		48,179		(712	)		1,334,637
Equity securities:
	Privately held		31,536		232		(326	)		31,630

	Total	$	1,413,640	$	48,411	$	(1,038	)	$	1,366,267

8. Earnings Per Share

As a result of the net loss for the 2002 third quarter, diluted average shares outstanding for the 2002 third quarter do not include 39,304,796 shares of diluted securities since the inclusion of such securities would be anti-dilutive. Since the Company reported net income for the nine months ended September 30, 2002, the computation of diluted average shares outstanding includes dilutive securities for such year-to-date period. The following table sets forth the computation of basic and diluted earnings per share:

		Three Months Ended September 30,					Nine Months Ended September 30,
(in thousands, except share data)		2003		2002			2003		2002
		(Unaudited)					(Unaudited)
Basic Earnings (Loss) Per Share:
Net income (loss)		$	82,587	$	(7,721	)	$	196,857	$	15,471
Divided by:
Weighted average shares outstanding for the period			26,255,775		21,497,224			26,153,718		18,310,714

Basic earnings (loss) per share		$	3.15	$	(0.36	)	$	7.53	$	0.84

Diluted Earnings (Loss) Per Share:
Net income (loss)		$	82,587	$	(7,721	)	$	196,857	$	15,471
Divided by:
Weighted average shares outstanding for the period			26,255,775		21,497,224			26,153,718		18,310,714
Effect of dilutive securities:
	Preference shares		38,844,665		—			38,844,665		35,992,484
	Warrants		62,119		—			60,682		1,149,753
	Nonvested restricted shares		1,026,723		—			922,854		947,400
	Stock options		1,585,440		—			1,557,411		800,622

Total diluted shares			67,774,722		21,497,224			67,539,330		57,200,973

Diluted earnings (loss) per share		$	1.22	$	(0.36	)	$	2.91	$	0.27

9. Income Taxes

ACGL is incorporated under the laws of Bermuda and, under current Bermuda law, is not obligated to pay any taxes in Bermuda based upon income or capital gains. The Company has received a written undertaking from the Minister of Finance in Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the event that any legislation is enacted in Bermuda imposing any tax computed on profits, income, gain or appreciation on any capital asset, or any tax in the nature of estate duty or inheritance tax, such tax will not be applicable to ACGL or any of its operations until March 28, 2016. This undertaking does not, however, prevent the imposition of taxes on any person ordinarily resident in Bermuda or any company in respect of its ownership of real property or leasehold interests in Bermuda.

ACGL will be subject to U.S. federal income tax only to the extent that it derives U.S. source income that is subject to U.S. withholding tax or income that is effectively connected with the conduct of a trade or business within the U.S. and is not exempt from U.S. tax under an applicable income tax treaty with the U.S. ACGL will be subject to a withholding tax on dividends from U.S. investments and interest from certain U.S. taxpayers. ACGL does not consider itself (or its non-U.S. subsidiaries) to be engaged in a trade or business within the U.S. and, consequently, does not expect to be subject to direct U.S. income taxation. However, because there is

9. Income Taxes (continued)

uncertainty as to the activities which constitute being engaged in a trade or business within the United States, there can be no assurances that the U.S. Internal Revenue Service will not contend successfully that ACGL or its non-U.S. subsidiaries are engaged in a trade or business in the United States. If ACGL or any of its non-U.S. subsidiaries were subject to U.S. income tax, ACGL's shareholders' equity and earnings could be materially adversely affected. ACGL's U.S. subsidiaries are subject to U.S. income taxes on their worldwide income.

ACGL changed its legal domicile from the United States to Bermuda in November 2000. Legislation has been introduced which (if enacted) could eliminate the tax benefits available to companies that have changed their legal domiciles to Bermuda, and such legislation may apply to ACGL. In addition, some U.S. insurance companies have been lobbying Congress to pass legislation intended to eliminate certain perceived tax advantages of U.S. insurance companies with Bermuda affiliates resulting principally from reinsurance between or among U.S. insurance companies and their Bermuda affiliates. This legislation, if passed, and other changes in U.S. tax laws, regulations and interpretations thereof to address these issues could materially adversely affect the Company.

The Company's effective tax rate, which is based upon the expected annual effective tax rate, may fluctuate from period to period based on the relative mix of income reported by jurisdiction due primarily to the varying tax rates in each jurisdiction. For the nine months ended September 30, 2003, the Company's income tax provision resulted in an effective tax rate of 11.4% on income before extraordinary items, excluding the reversal of a $773,000 valuation allowance on certain of the Company's deferred tax assets during the 2003 third quarter. The Company's remaining valuation allowance is $1.4 million at September 30, 2003. For the nine months ended September 30, 2002, the Company's income tax provision resulted in an effective tax rate of 27.6%, excluding the reversal of a $7.4 million valuation allowance on certain of the Company's deferred tax assets during the 2002 second quarter. The valuation allowance reversal in the 2002 second quarter was based on the Company's restructuring of its U.S.-based insurance underwriting operations and its business plan.

10. Transactions with Related Parties

In connection with the Company's information technology initiative in 2002, the Company has entered into arrangements with two software companies, which provide document management systems and information and research tools to insurance underwriters, in which Robert Clements and John Pasquesi, Chairman and Vice Chairman of ACGL's board of directors, respectively, each hold minority ownership interests. The Company 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. The Company has made payments of approximately $791,000 under such arrangements through September 30, 2003.

During the 2002 third quarter, the Company's board of directors accelerated the vesting terms of certain restricted common shares granted to Robert Clements, Chairman of the board, in connection with the November 2001 capital infusion, and Mr. Clements agreed to repay the outstanding $13.5 million loan previously made to him by the Company on or before November 12, 2002. Mr. Clements was granted 1,689,629 restricted common shares which were initially scheduled to vest in five equal annual amounts commencing on October 23, 2002. The vesting period and the amounts were changed as follows: 60% of the shares vested on October 23, 2002, 20% vested on October 23, 2003 and the remaining shares will vest on October 23, 2004.

The $13.5 million loan made by the Company to Mr. Clements was used by him to pay income and self employment taxes. Under his retention agreement, Mr. Clements received additional compensation in cash in an amount sufficient to defray the loan's interest costs. In order to facilitate the repayment of the loan, the Company agreed to repurchase, at Mr. Clements' option, an amount of his shares equal to the principal balance

10. Transactions with Related Parties (continued)

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, the Company 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, Mr. Clements sold 411,744 common shares of ACGL 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 on November 12, 2002. The Company's book value per diluted share decreased by approximately $0.04 following such share repurchase. During the loan period, Mr. Clements received payments of $638,000 from the Company under his retention agreement, of which $364,000 was used by him to pay interest on the loan.

Effective August 1, 2003, Constantine Iordanou became President and Chief Executive Officer of ACGL. Mr. Iordanou succeeded Peter Appel, who remains on the board of directors of ACGL. Effective July 31, 2003, the Company agreed to pay $2.3 million to Mr. Appel in recognition of his performance during his tenure as President and Chief Executive Officer of ACGL. In addition, Mr. Appel has agreed to assist ACGL in seeking to maximize the value of the assets deemed "non-core" under the subscription agreement entered into in connection with the November 2001 capital infusion. In that connection, the Company entered into a non-core business payment agreement with Mr. Appel pursuant to which Mr. Appel will be paid an amount equal to $1.5 million if, and only if, the aggregate of the realized values of all non-core assets equals or exceeds the aggregate of the adjusted closing book values of all such non-core assets, as computed under the subscription agreement as soon as practicable following November 2003. Mr. Appel will also be paid an amount equal to 15% of the net excess, if any, of the realized value over the adjusted closing book value of all the non-core assets; provided, however that any such additional amount payable will not exceed $1.5 million (such that the aggregate amount payable under the non-core business payment agreement will not exceed $3.0 million).

11. Contingencies Relating to the Sale of Prior Reinsurance Operations

On May 5, 2000, the Company sold the prior reinsurance operations of Arch Reinsurance Company ("Arch Re U.S.") pursuant to an agreement entered into as of January 10, 2000 with Folksamerica Reinsurance Company and Folksamerica Holding Company (collectively, "Folksamerica"). Folksamerica Reinsurance Company assumed Arch Re U.S.'s liabilities under the reinsurance agreements transferred in the asset sale and Arch Re U.S. transferred to Folksamerica Reinsurance Company assets estimated in an aggregate amount equal in book value to the book value of the liabilities assumed. The Folksamerica transaction was structured as a transfer and assumption agreement (and not reinsurance) and, accordingly, the loss reserves (and any related reinsurance recoverables) relating to the transferred business are not included as assets or liabilities on the Company's balance sheet. Folksamerica assumed Arch Re U.S.'s rights and obligations under the reinsurance agreements transferred in the asset sale. The reinsureds under such agreements were notified that Folksamerica had assumed Arch Re U.S.'s obligations and that, unless the reinsureds object to the assumption, Arch Re U.S. will be released from its obligations to those reinsured. None of such reinsureds objected to the assumption. However, Arch Re U.S. will continue to be liable under those reinsurance agreements if the notice is found not to be an effective release by the reinsureds. Folksamerica has agreed to indemnify the Company for any losses arising out of the reinsurance agreements transferred to Folksamerica Reinsurance Company in the asset sale. However, in the event that Folksamerica refuses or is unable to perform its obligations to the Company, Arch Re U.S. may incur losses relating to the reinsurance agreements transferred in the asset sale. Folksamerica has an A.M. Best rating of "A" (Excellent).

Under the terms of the agreement, in 2000, the Company had also purchased reinsurance protection covering the Company's transferred aviation business to reduce the net financial loss to Folksamerica on any large commercial airline catastrophe to $5.4 million, net of reinstatement premiums. Although the Company

11. Contingencies Relating to the Sale of Prior Reinsurance Operations (continued)

believes that any such net financial loss will not exceed $5.4 million, the Company has agreed to reimburse Folksamerica if a loss is incurred that exceeds $5.4 million for aviation losses under certain circumstances prior to May 5, 2003. The Company also made representations and warranties to Folksamerica about the Company and the business transferred to Folksamerica for which the Company retains exposure for certain periods, and made certain other agreements. In addition, the Company retained its tax and employee benefit liabilities and other liabilities not assumed by Folksamerica, including all liabilities not arising under reinsurance agreements transferred to Folksamerica in the asset sale and all liabilities (other than liabilities arising under reinsurance agreements) arising out of or relating to a certain managing underwriting agency. Although Folksamerica has not asserted that any amount is currently due under any of the indemnities provided by the Company under the asset purchase agreement, Folksamerica has indicated a potential indemnity claim under the agreement in the event of the occurrence of certain future events. Based on all available information, the Company has denied the validity of any such potential claim.

12. Credit Line

On September 12, 2003, the Company entered into an unsecured credit facility with a syndicate of banks led by JPMorgan Chase Bank and Bank of America, N.A. (the "Credit Facility"). The Credit Facility is in the form of a 364-day revolving credit agreement that may be converted by the Company into a two-year term loan at expiration. The Credit Facility provides for the borrowing of up to $300.0 million with interest at a rate selected by the Company equal to either (i) an adjusted London InterBank Offered Rate ("LIBOR") plus a margin or (ii) an alternate base rate ("Base Rate"). The Base Rate is the higher of the rate of interest established by JPMorgan Chase Bank as its prime rate or the Federal Funds rate plus 0.5% per annum. The payment terms for amounts converted into a term loan at expiration are as follows: 16.66% due 12 months following expiration, 16.67% due 18 months following expiration and 66.67% due 24 months following expiration. The facility will be available to provide capital in support of the Company's growing insurance and reinsurance businesses, as well as other general corporate purposes.

The Company is required to comply with certain covenants under the Credit Facility agreement. These covenants require, among other things, that the Company maintain a debt to shareholders' equity ratio of not greater than 0.35 to 1 and shareholders' equity in excess of $1.0 billion plus 40% of future aggregate net income (not including any future net losses) and 40% of future aggregate capital raising proceeds, and the Company's principal insurance and reinsurance subsidiaries maintain at least a "B++" rating from A.M. Best. The Company was in compliance with all covenants contained in the Credit Facility agreement at September 30, 2003.

On September 29, 2003, the Company borrowed $200.0 million under the Credit Facility at a fixed interest rate of approximately 2.44% through March 2004. The proceeds from such borrowings were contributed to the Company's subsidiaries to support their underwriting activities. The Company paid $1.3 million in fees in connection with the Credit Facility during the 2003 third quarter. Such fees were deferred and will be amortized over the loan period.

13. Extraordinary Gain

The Company recorded an extraordinary gain of $816,000 in the 2003 third quarter related to the acquisition of Personal Service Insurance Company ("PSIC") in the 2002 fourth quarter. The extraordinary gain represents an adjustment to the fair value of PSIC due to the recognition of deferred tax assets as a result of the acquisition.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion and analysis contains forward-looking statements which involve inherent risks and uncertainties. All statements other than statements of historical fact are forward-looking statements. These statements are based on our current assessment of risks and uncertainties. Actual results may differ materially from those expressed or implied in these statements. Important factors that could cause actual events or results to differ materially from those indicated in such statements are discussed in this report, including the section entitled "Cautionary Note Regarding Forward Looking Statements," and in our periodic reports filed with the Securities and Exchange Commission ("SEC").

General

The Company

Arch Capital Group Ltd. ("ACGL"), a Bermuda public limited liability company with over $1.6 billion in equity capital, provides insurance and reinsurance on a worldwide basis through its wholly owned subsidiaries. While we are positioned to provide a full range of property and casualty insurance and reinsurance lines, we are focusing on writing specialty lines of insurance and reinsurance. In October 2001, we launched an underwriting initiative to meet current and future demand in the global insurance and reinsurance markets that included the recruitment of new insurance and reinsurance management teams and an equity capital infusion of $763.2 million. In April 2002, we completed an offering of common shares and received net proceeds of $179.2 million and, in September 2002, we received proceeds of $74.3 million from the exercise of class A warrants by our principal shareholders and certain other investors. It is our belief that our existing Bermuda and U.S.-based underwriting platform, our strong management team and our capital that is unencumbered by significant exposure to pre-2002 risks have enabled us to establish a strong presence in an attractive insurance and reinsurance marketplace.

Critical Accounting Policies, Estimates and Recent Accounting Pronouncements

The preparation of consolidated financial statements requires us to make many estimates and judgments that affect the reported amounts of assets, liabilities (including reserves), revenues and expenses, and related disclosures of contingent liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, insurance and other reserves, reinsurance recoverables, investment valuations, intangible assets, bad debts, income taxes, contingencies and litigation. We base our estimates on historical experience, where possible, and on various other assumptions that we believe to be reasonable under the circumstances, which form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates and judgments for a relatively new insurance and reinsurance company, like our company, are even more difficult to make than those made in a mature company since very limited historical information has been reported to us through September 30, 2003. Actual results will differ from these estimates and such differences may be material. We believe that the following critical accounting policies require our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Reserves for Losses and Loss Adjustment Expenses

We are required by applicable insurance laws and regulations and generally accepted accounting principles ("GAAP") to establish reserves for losses and loss adjustment expenses that arise from the business we underwrite. These reserves are balance sheet liabilities representing estimates of future amounts required to pay losses and loss adjustment expenses for insured or reinsured claims which have occurred at or before the balance sheet date.

Insurance loss reserves are inherently subject to uncertainty. The period of time from the occurrence of a loss through the settlement of the liability may extend many years into the future. During this period, additional facts and trends will become known and, as these factors become apparent, reserves will be adjusted in the period in which the new information becomes known. While reserves are established based upon available information, certain factors, such as those inherent in the political, judicial and legal systems, including judicial and litigation trends and legislation changes, could impact the ultimate liability. Changes to our prior year loss reserves can impact our current underwriting results by (1) reducing our reported results if the prior year reserves prove to be deficient or (2) improving our reported results if the prior year reserves prove to be redundant. The reserves for losses and loss adjustment expenses represent estimates involving actuarial and statistical projections at a given point in time of our expectations of the ultimate settlement and administration costs of losses incurred, and it is likely that the ultimate liability may exceed or be less than such estimates. We utilize actuarial models as well as available historical insurance and reinsurance industry loss ratio experience and loss development patterns to assist in the establishment of appropriate loss reserves. Even actuarially sound methods can lead to subsequent adjustments to loss reserves that are both significant and irregular due to the nature of the risks written, potentially by a material amount.

For reinsurance assumed, case reserves are based on reports received from ceding companies, supplemented by our estimates of reserves for which ceding company reports have not been received. For our insurance operations, generally, claims personnel determine whether to establish a case reserve for the estimated amount of the ultimate settlement of individual claims. The estimate reflects the judgment of claims personnel based on general corporate reserving practices and the experience and knowledge of such personnel regarding the nature and value of the specific type of claim and, where appropriate, advice of counsel. Our insurance operations also contract with a number of outside third party administrators in the claims process who, in certain cases, have limited authority to establish case reserves. The work of such administrators is reviewed and monitored by our claims personnel. Reserves are also established to provide for the estimated expense of settling claims, including legal and other fees and the general expenses of administering the claims adjustment process. Periodically, adjustments to the reported or case reserves may be made as additional information regarding the claims is reported or payments are made. In accordance with industry practice, we also maintain incurred but not reported ("IBNR") reserves. Such reserves are established to provide for incurred claims which have not yet been reported to an insurer or reinsurer as well as to actuarially adjust for any projected variance in case reserving.

Even though most insurance policies have policy limits, the nature of property and casualty insurance and reinsurance is such that losses can exceed policy limits for a variety of reasons and could very significantly exceed the premiums received on the underlying policies. We attempt to limit our risk of loss through reinsurance and may also use retrocessional arrangements. The availability and cost of reinsurance and retrocessional protection is subject to market conditions, which are beyond our control.

In establishing the reserves for losses and loss adjustment expenses, we have made various assumptions relating to the pricing of our reinsurance contracts and insurance policies and have also considered available historical industry experience and current industry conditions. Our reserving method for 2002 and 2003 was primarily the expected loss method, which is commonly applied when limited loss experience exists. We select the initial expected loss and loss adjustment expense ratios based on information derived by our underwriters and actuaries during the initial pricing of the business. These ratios consider, among other things, rate increases and changes in terms and conditions that have been observed in the market. Any estimates and assumptions made as part of the reserving process could prove to be inaccurate due to several factors, including the fact that very limited historical information has been reported to us through September 30, 2003 due to our start-up nature. As actual loss information is reported to us and we develop our own loss experience, our reserving methods will also include other actuarial techniques. It is possible that claims in respect of events that have occurred could exceed our reserves and have a material adverse effect on our results of operations in a particular period or our financial condition in general.

Under GAAP, we are only permitted to establish loss and loss adjustment expense reserves for losses that have occurred on or before the financial statement date. Case reserves and IBNR reserves contemplate these obligations. No contingency reserve allowances are established to account for future loss occurrences. Losses arising from future events will be estimated and recognized at the time the losses are incurred and could be substantial.

Premium Revenues and Related Expenses

Insurance premiums written are generally recorded at the policy inception and are primarily earned on a pro rata basis in accordance with the terms of the policies. Premiums written include estimates in our program business which are generally reported on a lag basis. Unearned premium reserves represent the portion of such premiums written that relates to the unexpired terms of in-force insurance policies.

Reinsurance premiums written include amounts reported by the ceding companies, supplemented by our own estimates of premiums for which ceding company reports have not been received. Premiums on our excess of loss and pro rata reinsurance contracts are estimated when the business is underwritten. For excess of loss contracts, the minimum premium, as defined in the contract, is generally recorded as an estimate of premiums written as of the date of the treaty. Estimates of premiums written under pro rata contracts are recorded in the period in which the underlying risks are expected to incept and are based on information provided by the brokers and the ceding companies. For multi-year reinsurance treaties which are payable in annual installments, only the initial annual installment is included as premiums written at policy inception due to the ability of the reinsured to commute or cancel coverage during the term of the policy. The remaining annual installments are included as premiums written at each successive anniversary date within the multi-year term.

As actual premiums are reported by the ceding companies, management evaluates the appropriateness of the premium estimates, and any adjustment to these estimates is recorded in the period in which it becomes known. Adjustments to original premium estimates could be material and such adjustments could directly and significantly impact earnings in the period they are determined because the subject premium may be fully or substantially earned. A significant portion of amounts included as premiums receivable, which represent estimated premiums written, net of commissions, is not currently due based on the terms of the underlying contracts.

Reinsurance premiums assumed are earned generally on a pro rata basis over the terms of the underlying policies or reinsurance contracts. Contracts and policies written on a losses occurring basis cover losses which occur during the term of the contract or policy, which typically extends 12 months. Accordingly, the premium is reflected as earned evenly over the term. Pro rata contracts, which are written on a risks attaching basis, cover losses which attach to the underlying insurance policies written during the terms of such pro rata contracts. Premiums earned on a risks attaching basis usually extend beyond the original term of the reinsurance contract, typically resulting in recognition of premiums earned over a 24-month period.

Certain of our reinsurance contracts include provisions that adjust premiums or acquisition expenses based upon the experience under the contracts. Premiums written and earned, as well as related acquisition expenses under these contracts, are recorded based upon the projected experience under those contracts.

We also write certain business that is intended to provide insurers with risk management solutions that complement traditional reinsurance. Under these contracts, we assume a measured amount of insurance risk in exchange for a margin. The terms and conditions of these contracts may include additional or return premiums based on loss experience, loss corridors, sublimits and caps. Examples of such business include aggregate stop-loss coverages and financial quota share coverages.

Certain assumed reinsurance contracts, which pursuant to Statement of Financial Accounting Standards ("SFAS") No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts," issued by the Financial Accounting Standards Board ("FASB"), are deemed, for financial reporting

purposes, not to transfer insurance risk, are accounted for using the deposit method of accounting as prescribed in Statement of Position 98-7, "Deposit Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk." For those contracts that contain an element of underwriting risk, the estimated profit margin is deferred and amortized over the contract period and such amount is included in our underwriting results. When the estimated profit margin is explicit, the margin is reflected as fee income, and when the estimated profit margin is implicit it is reflected as an offset to incurred losses. For those contracts that do not transfer an element of underwriting risk, the estimated profit is reflected in earnings over the estimated settlement period using the interest method and such profit is included in investment income.

Under GAAP, acquisition expenses and other expenses that vary with, and are directly related to, the acquisition of business in our underwriting operations are deferred and amortized over the period in which the related premiums are earned. Acquisition expenses consist principally of commissions and brokerage expenses. Other operating expenses also include expenses that vary with, and are directly related to, the acquisition of business. Acquisition expenses are reflected net of ceding commissions received from unaffiliated reinsurers. Deferred acquisition costs are carried at their estimated realizable value based on the related unearned premiums and take into account anticipated losses and loss adjustment expenses, based on historical and current experience, and anticipated investment income.

Policy-related fee income, such as billing, cancellation and reinstatement fees, is primarily recognized as earned when substantially all of the related services have been provided. Policy-related fee income will vary in the future related to such activity and is earned primarily in our non-standard automobile business.

Collection of Insurance-Related Balances

We are subject to credit risk with respect to our reinsurance ceded because the ceding of risk to reinsurers or retrocessionaires does not relieve us of our liability to the clients or companies we insure or reinsure. If the financial condition of our reinsurers or retrocessionaires deteriorates, resulting in an impairment of their ability to make payments, we will provide for probable losses resulting from our inability to collect amounts due from such parties, as appropriate. We are also subject to credit risk from our alternative market products, such as rent-a-captive risk-sharing programs, which allow a client to retain a significant portion of its loss exposure without the administrative costs and capital commitment required to establish and operate its own captive. In certain of these programs, we participate in the operating results by providing excess reinsurance coverage and earn commissions and management fees. In addition, we write program business on a risk-sharing basis with managing general agents or brokers, which may be structured with commissions which are contingent on the underwriting results of the program. While we attempt to obtain collateral from such parties in an amount sufficient to guarantee their projected financial obligations to us, there is no guarantee that such collateral will be sufficient to secure their actual ultimate obligations. We provide for probable losses resulting from our inability to collect amounts due from managing general agents, brokers and other clients.

Valuation Allowance

We record a valuation allowance to reduce certain of our deferred tax assets to the amount that is more likely than not to be realized. We have considered future taxable income and feasible tax planning strategies in assessing the need for a valuation allowance. In the event we determine that we would not be able to realize all or part of our deferred tax assets in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made. In addition, if we subsequently assessed that the valuation allowance was no longer needed, a benefit would be recorded to income in the period in which such determination was made.

Investments

We currently classify all of our publicly traded fixed maturity investments, short-term investments and equity securities as "available for sale" and, accordingly, they are carried at estimated fair value. The fair value of publicly traded fixed maturity securities and publicly traded equity securities is estimated using quoted market prices or dealer quotes. Short-term investments comprise securities due to mature within one year of the date of issue. Short-term investments include certain cash equivalents which are part of our investment portfolios under the management of external investment managers. Investments included in our private portfolio include securities issued by privately held companies. Our investments in privately held equity securities, other than those carried under the equity method of accounting, are carried at estimated fair value. Fair value is initially considered to be equal to the cost of such investment until the investment is revalued based on substantive events or other factors which could indicate a diminution or appreciation in value. We apply Accounting Principles Board ("APB") Opinion No. 18, "The Equity Method of Accounting for Investments in Common Stock," for privately held equity investments accounted for under the equity method, and we record our percentage share of the investee company's net income or loss.

In accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," we periodically review our investments to determine whether a decline in fair value below the amortized cost basis is other than temporary. If such decline in fair value is judged to be other than temporary, we would write down the investment to fair value as a new cost basis and the amount of the write-down would be charged to income as a realized loss. The new cost basis would not be changed for subsequent recoveries in fair value.

Stock Issued to Employees

We have adopted the provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for employee stock options because the alternative fair value accounting provided for under SFAS No. 123, "Accounting for Stock-Based Compensation," requires the use of option valuation models that we believe were not developed for use in valuing employee stock options. Accordingly, under APB No. 25, compensation expense for stock option grants is recognized only to the extent that the fair value of the underlying stock exceeds the exercise price of the option at the measurement date.

For restricted shares granted, we record deferred compensation equal to the market value of the shares at the measurement date, which is amortized and primarily charged to income as non-cash compensation over the vesting period. These restricted shares are recorded as outstanding upon issuance (regardless of any vesting period). See "—Results of Operations—Non-Cash Compensation."

Recent Accounting Pronouncements

See note 3, "Accounting Pronouncements," of the notes accompanying our consolidated financial statements.

Results of Operations—Three Months ended September 30, 2003 and 2002

The following table sets forth net income and earnings per share data:

	Three Months Ended September 30,
(in thousands, except share data)	2003		2002
	(Unaudited)
Net income (loss)	$	82,587	$	(7,721	)

Diluted net income (loss) per share	$	1.22	$	(0.36	)

Diluted average shares outstanding		67,774,722		21,497,224

Net income increased to $82.6 million for the 2003 third quarter, compared to a loss of $7.7 million for the 2002 third quarter. The increase in net income was primarily due to a significant increase in the underwriting results of both our reinsurance and insurance operations, as discussed in "—Segment Information" below. In addition, net income increased due to growth in our investment results. Basic earnings per share data does not include the significant number of preference shares outstanding in 2003 and 2002. As a result of the net loss for the three months ended September 30, 2002, diluted net loss per share and diluted average shares outstanding for the 2002 third quarter do not include the impact of 39,304,796 shares of dilutive securities, since the inclusion of such securities would be anti-dilutive. Since we reported net income for the nine months ended September 30, 2002, the computation of diluted shares outstanding includes dilutive securities for such year-to-date period.

Segment Information

We classify our businesses into two underwriting segments—reinsurance and insurance—and a corporate and other segment (non-underwriting). SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," requires certain disclosures about operating segments in a manner that is consistent with how management evaluates the performance of the segment. For a description of our underwriting segments, refer to note 4, "Segment Information," of the notes accompanying our consolidated financial statements. Segment performance is evaluated primarily based on underwriting income or loss.

Reinsurance Segment

The following table sets forth our reinsurance segment's underwriting results:

	Three Months Ended September 30,
(in thousands)	2003			2002
	(Unaudited)
Gross premiums written	$	411,443		$	215,326
Net premiums written		397,418			204,530
Net premiums earned	$	348,883		$	143,497
Other underwriting-related fee income		1,369			—
Losses and loss adjustment expenses		(223,419	)		(90,216	)
Acquisition expenses, net		(79,011	)		(36,212	)
Other operating expenses		(8,862	)		(4,108	)

Underwriting income	$	38,960		$	12,961

Underwriting Ratios
Loss ratio		64.0	%		62.9	%
Acquisition expense ratio		22.6	%		25.2	%
Other operating expense ratio		2.5	%		2.9	%

Combined ratio		89.1	%		91.0	%

Underwriting Income. The reinsurance segment's underwriting income increased to $39.0 million for the 2003 third quarter, compared to $13.0 million for the 2002 third quarter. The combined ratio for the reinsurance segment was 89.1% for the 2003 third quarter, compared to 91.0% for the 2002 third quarter. The components of the reinsurance segment's underwriting income are discussed below.

Premiums Written. Gross premiums written for our reinsurance segment increased to $411.4 million for the 2003 third quarter, compared to $215.3 million for the 2002 third quarter. We are currently retaining

substantially all of our reinsurance premiums written. We do, however, participate in "common account" retrocessional arrangements for certain treaties. Such arrangements reduce the effect of individual or aggregate losses to all companies participating on such treaties, including the reinsurer, such as us, and the ceding company. We will continue to evaluate our retrocessional requirements.

Net premiums written for our reinsurance segment increased to $397.4 million for the 2003 third quarter, compared to $204.5 million for the 2002 third quarter. Over half of the increase in net premiums written was attributable to casualty business. During the 2003 third quarter, the reinsurance segment significantly increased its quota share participation in an account included in its other specialty line of business retroactive to January 1, 2003. As a result, net premiums written in the 2003 third quarter included approximately $20.0 million relating to the increased participation in such contract covering the first six months of 2003.

For the 2003 third quarter, 81.7% of net premiums written were generated from pro rata contracts and 18.3% were derived from excess of loss treaties. For the 2002 third quarter, 64.2% of net premiums written were generated from pro rata contracts and 35.8% were derived from excess of loss treaties. Pro rata contracts are typically written at a lower loss ratio and higher expense ratio than excess of loss business.

Set forth below is summary information regarding our reinsurance segment's net premiums written by major line of business:

		Three Months Ended September 30,
		2003					2002
(in thousands)		Amount			% of Total		Amount		% of Total
		(Unaudited)
Major line of business:
	Net premiums written
	Casualty	$	174,945		44.0	%	$	76,896	37.6	%
	Other specialty		107,638		27.1	%		38,341	18.7	%
	Property excluding property catastrophe		76,996		19.4	%		42,193	20.6	%
	Property catastrophe		21,872		5.5	%		23,105	11.3	%
	Marine and aviation		14,548		3.7	%		9,724	4.8	%
	Casualty clash		1,650		0.4	%		3,661	1.8	%
	Non-traditional		(231	)	(0.1	)%		10,610	5.2	%

	Total	$	397,418		100.0	%	$	204,530	100.0	%

For information regarding net premiums written produced by geographic location, refer to note 4, "Segment Information," of the notes accompanying our consolidated financial statements.

Net Premiums Earned. Net premiums earned for our reinsurance segment increased to $348.9 million for the 2003 third quarter, compared to $143.5 million for the 2002 third quarter. Over 47% of the increase in net premiums earned was attributable to casualty business. Net premiums earned reflects period to period changes in net premiums written, including the mix and type of business. For the 2003 third quarter, 73.6% of net premiums earned were generated from pro rata contracts, while 26.4% of net premiums earned were generated from excess of loss treaties. For the 2002 third quarter, 46.5% of net premiums earned were generated from pro rata contracts, while 53.5% of net premiums earned were generated from excess of loss treaties.

Set forth below is summary information regarding our reinsurance segment's net premiums earned by major line of business:

		Three Months Ended September 30,
		2003				2002
(in thousands)		Amount		% of Total		Amount		% of Total
		(Unaudited)
Major line of business:
	Net premiums earned
	Casualty	$	123,840	35.5	%	$	26,203	18.2	%
	Other specialty		83,984	24.1	%		35,796	24.9	%
	Property excluding property catastrophe		81,645	23.4	%		24,121	16.8	%
	Property catastrophe		24,408	7.0	%		24,341	17.0	%
	Marine and aviation		18,333	5.2	%		8,718	6.1	%
	Non-traditional		14,010	4.0	%		20,305	14.2	%
	Casualty clash		2,663	0.8	%		4,013	2.8	%

	Total	$	348,883	100.0	%	$	143,497	100.0	%

Other Underwriting-Related Fee Income. Certain assumed reinsurance contracts are deemed, for financial reporting purposes, not to transfer insurance risk, and are accounted for using the deposit method of accounting. For those contracts that contain an element of underwriting risk, the estimated profit margin is deferred and amortized over the contract period. When the estimated profit margin is explicit, the margin is reflected as fee income. We recorded $1.4 million of fee income on such contracts for the 2003 third quarter.

Losses and Loss Adjustment Expenses. Reinsurance segment losses and loss adjustment expenses incurred for the 2003 third quarter were $223.4 million, or 64.0% of net premiums earned, compared to $90.2 million, or 62.9%, for the 2002 third quarter. For a discussion of the reserves for losses and loss adjustment expenses, please refer to the section above entitled "—Critical Accounting Policies, Estimates and Recent Accounting Pronouncements—Reserves for Losses and Loss Adjustment Expenses."

Underwriting Expenses. The acquisition expense ratio for the 2003 third quarter was 22.6%, compared to 25.2% for the 2002 third quarter, and the other operating expense ratio for the 2003 third quarter was 2.5%, compared to 2.9% for the 2002 third quarter. Movements in the acquisition expense ratio reflect changes in the percentage of net premiums earned from pro rata contracts along with the mix of business. While aggregate operating expenses were higher for the 2003 third quarter compared to the 2002 third quarter, the operating expense ratio decreased primarily due to the growth in net premiums earned in the 2003 period.

Insurance Segment

The following table sets forth our insurance segment's underwriting results:

	Three Months Ended September 30,
(in thousands)	2003			2002
	(Unaudited)
Gross premiums written	$	558,863		$	208,425
Net premiums written		376,749			114,154
Net premiums earned	$	260,073		$	40,482
Policy-related fee income		3,583			2,570
Losses and loss adjustment expenses		(168,555	)		(29,904	)
Acquisition expenses, net		(36,840	)		(2,815	)
Other operating expenses		(33,654	)		(10,903	)

Underwriting income (loss)	$	24,607		$	(570	)

Underwriting Ratios
Loss ratio		64.8	%		73.9	%
Acquisition expense ratio(1)		12.8	%		0.6	%
Other operating expense ratio		12.9	%		26.9	%

Combined ratio		90.5	%		101.4	%

(1): The acquisition expense ratio is adjusted to include certain policy-related fee income.

Underwriting Income (Loss). The insurance segment's underwriting income was $24.6 million for the 2003 third quarter, compared to a loss of $570,000 for the 2002 third quarter. The combined ratio for the insurance segment was 90.5% for the 2003 third quarter, compared to 101.4% for the 2002 third quarter. The components of the insurance segment's underwriting income or loss are discussed below.

Premiums Written. Gross premiums written for our insurance segment increased to $558.9 million for the 2003 third quarter, compared to $208.4 million for the 2002 third quarter. During 2002, the insurance segment established new profit centers in various specialty lines and began writing business in these new areas of focus primarily during the last six months of the year. The insurance segment also added a number of new accounts in its program business during 2002. In addition to new business written in the 2003 third quarter, premiums written also include the renewal of certain accounts initially written in 2002. Accordingly, premiums written by the insurance segment during the 2003 third quarter were significantly higher than the comparable 2002 third quarter.

Net premiums written for our insurance segment increased to $376.7 million for the 2003 third quarter, compared to $114.2 million for the 2002 third quarter. Contributing to this increase was a $93.1 million increase in program business, a $46.5 million increase in casualty business and a $42.3 million increase in construction and surety business. The insurance segment also significantly reduced the percentage of business ceded to unaffiliated reinsurers in its program business during 2002 contributing to the growth in net premiums written.

Set forth below is summary information regarding the insurance segment's net premiums written by major line of business:

		Three Months Ended September 30,
		2003				2002
(in thousands)		Amount		% of Total		Amount		% of Total
		(Unaudited)
Major line of business:
	Net premiums written
	Programs	$	116,172	30.8	%	$	23,106	20.2	%
	Casualty		68,788	18.3	%		22,263	19.5	%
	Construction and surety		53,374	14.2	%		11,055	9.7	%
	Property		42,770	11.3	%		18,553	16.3	%
	Executive assurance		34,817	9.2	%		15,388	13.5	%
	Professional liability		28,850	7.7	%		5,492	4.8	%
	Healthcare		9,855	2.6	%		3,453	3.0	%
	Other		22,123	5.9	%		14,844	13.0	%

	Total	$	376,749	100.0	%	$	114,154	100.0	%

For information regarding net premiums written produced by geographic location, refer to note 4, "Segment Information," of the notes accompanying our consolidated financial statements.

Net Premiums Earned. Net premiums earned for our insurance segment increased to $260.1 million for the 2003 third quarter, compared to $40.5 million for the 2002 third quarter. Contributing to this increase was a $73.1 million increase in program business, a $41.3 million increase in casualty business and a $24.4 million increase in construction and surety business.

Set forth below is summary information regarding the insurance segment's net premiums earned by major line of business:

		Three Months Ended September 30,
		2003				2002
(in thousands)		Amount		% of Total		Amount		% of Total
		(Unaudited)
Major line of business:
	Net premiums earned
	Programs	$	81,712	31.4	%	$	8,581	21.2	%
	Casualty		46,660	17.9	%		5,379	13.3	%
	Property		27,730	10.7	%		5,312	13.1	%
	Construction and surety		25,672	9.9	%		1,274	3.2	%
	Executive assurance		24,380	9.4	%		5,392	13.3	%
	Professional liability		21,428	8.2	%		1,593	3.9	%
	Healthcare		10,900	4.2	%		327	0.8	%
	Other		21,591	8.3	%		12,624	31.2	%

	Total	$	260,073	100.0	%	$	40,482	100.0	%

Policy-Related Fee Income. Policy-related fee income for our insurance segment was $3.6 million for the 2003 third quarter, compared to $2.6 million for the 2002 third quarter. Such amounts were earned primarily on our non-standard automobile business.

Losses and Loss Adjustment Expenses. Insurance segment losses and loss adjustment expenses incurred for the 2003 third quarter were $168.6 million, or 64.8% of net premiums earned, compared to $29.9 million, or 73.9%, for the 2002 third quarter. For a discussion of the reserves for losses and loss adjustment expenses, please refer to the section above entitled "—Critical Accounting Policies, Estimates and Recent Accounting Pronouncements—Reserves for Losses and Loss Adjustment Expenses."

Underwriting Expenses. The acquisition expense ratio for our insurance segment is calculated net of certain policy-related fee income and is influenced by, among other things, (1) the amount of ceding commissions received from unaffiliated reinsurers and (2) the amount of business written on a surplus lines (non-admitted) basis. The acquisition expense ratio was 12.8% for the 2003 third quarter (net of 1.4 points of policy-related fee income), compared to 0.6% for the 2002 third quarter (net of 6.3 points of policy-related fee income). The increase in the acquisition expense ratio resulted from the increased contribution of business from our insurance segment's new areas of focus in the 2003 period and a reduction in ceding commissions due from unaffiliated reinsurers.

The other operating expense ratio for the 2003 third quarter was 12.9%, compared to 26.9% for the 2002 third quarter. While aggregate operating expenses were higher for the 2003 third quarter compared to the 2002 third quarter in connection with the growth in gross premiums written, the operating expense ratio decreased primarily due to the growth in net premiums earned in the 2003 period.

Net Investment Income

Net investment income was $20.5 million for the 2003 third quarter, compared to $14.9 million for the 2002 third quarter. The increase in net investment income for the 2003 third quarter was due to the significant increase in our invested assets primarily resulting from cash flow from operations in 2003 and 2002, which more than offset the effect of lower yields available in the financial markets in 2003 compared to 2002. Our pre-tax and after-tax investment yields, respectively, for the 2003 third quarter were 2.8% and 2.5%, compared to 4.2% and 4.1% for the 2002 third quarter. These yields were calculated based on the amortized cost of the portfolio. Yields on future investment income may vary based on financial market conditions, investment allocation decisions and other factors.

Net Realized Investment Gains or Losses

Following is a summary of net realized investment gains (losses):

	Three Months Ended September 30,
(in thousands)	2003		2002
	(Unaudited)
Fixed maturities	$	11,130	$	(497	)
Privately held securities		236		(339	)

Total	$	11,366	$	(836	)

Net realized gains or losses in our fixed income portfolio during the 2003 and 2002 periods resulted from the sale of certain securities to reduce credit exposure and from sales related to rebalancing the portfolio.

Other

Other fee income, net of related expenses, represents revenues and expenses provided by our non-underwriting operations. Other income is generated by our investments in privately held securities. At September 30, 2003, we held five investments in privately held securities. Three of such investments are accounted for under the equity method of accounting. Under the equity method, we record a proportionate share of the investee company's net income or loss based on our ownership percentage in such investment, which amounted to $546,000 for the 2003 third quarter, compared to $185,000 for the 2002 third quarter. Other expenses primarily represent certain holding company costs necessary to support our growing worldwide insurance and reinsurance operations and costs associated with operating as a publicly-traded company.

Net Foreign Exchange Gains or Losses

Net foreign exchange gains for the 2003 third quarter of $3,708,000 consisted of net unrealized gains of $3,212,000 and net realized gains of $496,000. Net foreign exchange losses for the 2002 third quarter of $726,000 consisted of net unrealized losses of $2,352,000 and net realized gains of $1,626,000. Foreign exchange gains and losses vary with fluctuations in currency rates and result from the translation of foreign denominated monetary assets and liabilities. These gains and losses could add significant volatility to our net income in future periods.

Non-Cash Compensation

Non-cash compensation primarily results from restricted shares granted in connection with our 2001 underwriting initiative. Non-cash compensation expense for the 2003 third quarter was $3.9 million, compared to $29.5 million for the 2002 third quarter. The 2002 third quarter amount reflected the accelerated vesting of certain restricted common shares granted to the chairman of our board of directors. The accelerated recognition in the 2002 third quarter had no effect on our shareholders' equity and had the effect of reducing non-cash compensation in subsequent periods. See note 10, "Transactions with Related Parties," of the notes accompanying our consolidated financial statements. Absent significant additional restricted share grants, non-cash compensation expense is currently expected to be approximately $3.1 million in the 2003 fourth quarter.

Income Taxes

Income tax expense was $9.9 million for the 2003 third quarter, compared to $392,000 for the 2002 third quarter. During the 2003 third quarter, we reversed a $773,000 valuation allowance. Our effective tax rate may fluctuate from period to period based on the relative mix of income reported by jurisdiction due primarily to the varying tax rates of each jurisdiction. Our quarterly tax provision is adjusted to reflect changes in our expected annual tax rates, if any. See note 9, "Income Taxes," of the notes accompanying our consolidated financial statements.

Extraordinary Gain

We recorded an extraordinary gain of $816,000 in the 2003 third quarter related to the acquisition of Personal Service Insurance Company ("PSIC") in the 2002 fourth quarter. The extraordinary gain represents an adjustment to the fair value of PSIC due to the recognition of deferred tax assets as a result of the acquisition.

Results of Operations—Nine Months ended September 30, 2003 and 2002

The following table sets forth net income and earnings per share data:

	Nine Months Ended September 30,
(in thousands, except share data)	2003		2002
	(Unaudited)
Net income	$	196,857	$	15,471

Diluted earnings per share	$	2.91	$	0.27

Diluted average shares outstanding		67,539,330		57,200,973

Net income increased to $196.9 million for the nine months ended September 30, 2003, compared to $15.5 million for the nine months ended September 30, 2002. The increase in net income was primarily due to a significant increase in the underwriting results of both our reinsurance and insurance operations, as discussed in "—Segment Information" below. In addition, net income increased due to growth in our investment results. The increase in diluted average shares outstanding for the nine months ended September 30, 2003 compared to the nine months ended September 30, 2002 is primarily due to the issuance during 2002 of common shares in a stock offering and upon the exercise of warrants.

Segment Information

Reinsurance Segment

The following table sets forth our reinsurance segment's underwriting results:

	Nine Months Ended September 30,
(in thousands)	2003			2002
	(Unaudited)
Gross premiums written	$	1,311,142		$	660,526
Net premiums written		1,268,374			646,010
Net premiums earned	$	932,334		$	295,360
Other underwriting-related fee income		5,097			—
Losses and loss adjustment expenses		(591,131	)		(198,221	)
Acquisition expenses, net		(217,379	)		(59,699	)
Other operating expenses		(22,644	)		(10,241	)

Underwriting income	$	106,277		$	27,199

Underwriting Ratios
Loss ratio		63.4	%		67.1	%
Acquisition expense ratio		23.3	%		20.2	%
Other operating expense ratio		2.4	%		3.5	%

Combined ratio		89.1	%		90.8	%

Underwriting Income. The reinsurance segment's underwriting income increased to $106.3 million for the nine months ended September 30, 2003, compared to $27.2 million for the nine months ended September 30, 2002. The combined ratio for the reinsurance segment was 89.1% for the nine months ended September 30, 2003, compared to 90.8% for the nine months ended September 30, 2002. The components of the reinsurance segment's underwriting income are discussed below.

Premiums Written. Gross premiums written increased to $1.31 billion for the nine months ended September 30, 2003 from $660.5 million for the nine months ended September 30, 2002. Net premiums written for our reinsurance segment increased to $1.27 billion for the nine months ended September 30, 2003, compared to $646.0 million for the nine months ended September 30, 2002. Over half of the increase in net premiums written was attributable to casualty business. For the nine months ended September 30, 2003, 69.6% of net premiums written were generated from pro rata contracts and 30.4% were derived from excess of loss treaties. For the nine months ended September 30, 2002, 50.2% of net premiums written were generated from pro rata contracts and 49.8% were derived from excess of loss treaties.

Set forth below is summary information regarding the reinsurance segment's net premiums written by major line of business:

		Nine Months Ended September 30,
		2003				2002
(in thousands)		Amount		% of Total		Amount		% of Total
		(Unaudited)
Major line of business:
	Net premiums written
	Casualty	$	480,769	37.9	%	$	133,764	20.7	%
	Other specialty		311,579	24.6	%		139,790	21.6	%
	Property excluding property catastrophe		258,844	20.4	%		126,068	19.5	%
	Property catastrophe		93,982	7.4	%		102,135	15.8	%
	Marine and aviation		60,318	4.8	%		38,322	5.9	%
	Non-traditional		51,352	4.0	%		89,341	13.9	%
	Casualty clash		11,530	0.9	%		16,590	2.6	%

	Total	$	1,268,374	100.0	%	$	646,010	100.0	%

For information regarding net premiums written produced by geographic location, refer to note 4, "Segment Information," of the notes accompanying our consolidated financial statements.

Net Premiums Earned. Net premiums earned for our reinsurance segment increased to $932.3 million for the nine months ended September 30, 2003, compared to $295.4 million for the nine months ended September 30, 2002. The increase in net premiums earned occurred in all major lines of business. For the nine months ended September 30, 2003, 68.2% of net premiums earned were generated from pro rata contracts, while 31.8% of net premiums earned were generated from excess of loss treaties. For the nine months ended September 30, 2002, 40.9% of net premiums earned were generated from pro rata contracts, while 59.1% of net premiums earned were generated from excess of loss treaties.

Set forth below is summary information regarding the reinsurance segment's net premiums earned by major line of business:

		Nine Months Ended September 30,
		2003				2002
(in thousands)		Amount		% of Total		Amount		% of Total
		(Unaudited)
Major line of business:
	Net premiums earned
	Casualty	$	314,448	33.7	%	$	45,347	15.4	%
	Property excluding property catastrophe		213,396	22.9	%		48,460	16.4	%
	Other specialty		204,572	21.9	%		68,770	23.3	%
	Property catastrophe		81,653	8.8	%		56,195	19.0	%
	Marine and aviation		55,604	6.0	%		18,730	6.3	%
	Non-traditional		52,461	5.6	%		47,768	16.2	%
	Casualty clash		10,200	1.1	%		10,090	3.4	%

	Total	$	932,334	100.0	%	$	295,360	100.0	%

Other Underwriting-Related Fee Income. Certain assumed reinsurance contracts are deemed, for financial reporting purposes, not to transfer insurance risk, and are accounted for using the deposit method of accounting. For those contracts that contain an element of underwriting risk, the estimated profit margin is deferred and amortized over the contract period. When the estimated profit margin is explicit, the margin is reflected as fee income. We recorded $5.1 million of fee income on such contracts for the nine months ended September 30, 2003.

Losses and Loss Adjustment Expenses. Reinsurance segment losses and loss adjustment expenses incurred for the nine months ended September 30, 2003 were $591.1 million, or 63.4% of net premiums earned, compared to $198.2 million, or 67.1%, for the nine months ended September 30, 2002. For a discussion of the reserves for losses and loss adjustment expenses, please refer to the section above entitled "—Critical Accounting Policies, Estimates and Recent Accounting Pronouncements—Reserves for Losses and Loss Adjustment Expenses."

Underwriting Expenses. The acquisition expense ratio for the nine months ended September 30, 2003 was 23.3%, compared to 20.2% for the nine months ended September 30, 2002, and the other operating expense ratio for the nine months ended September 30, 2003 was 2.4%, compared to 3.5% for the nine months ended September 30, 2002. Movements in the acquisition expense ratio reflect changes in the percentage of net premiums earned from pro rata contracts along with changes in the mix of business. While aggregate operating expenses were higher for the 2003 third quarter compared to the 2002 third quarter, the operating expense ratio decreased primarily due to the growth in net premiums earned in the 2003 period.

Insurance Segment

The following table sets forth our insurance segment's underwriting results:

	Nine Months Ended September 30,
(in thousands)	2003			2002
	(Unaudited)
Gross premiums written	$	1,283,776		$	358,693
Net premiums written		842,658			176,410
Net premiums earned	$	589,929		$	69,605
Policy-related fee income		10,358			6,505
Losses and loss adjustment expenses		(395,304	)		(52,743	)
Acquisition expenses, net		(72,244	)		(4,393	)
Other operating expenses		(86,145	)		(22,993	)

Underwriting income (loss)	$	46,594		$	(4,019	)

Underwriting Ratios
Loss ratio		67.0	%		75.8	%
Acquisition expense ratio (1)		10.5	%		(3.0	)%
Other operating expense ratio		14.6	%		33.0	%

Combined ratio		92.1	%		105.8	%

(1): The acquisition expense ratio is adjusted to include certain policy-related fee income.

Underwriting Income (Loss). The insurance segment's underwriting income was $46.6 million for the nine months ended September 30, 2003, compared to a loss of $4.0 million for the nine months ended September 30, 2002. The combined ratio for the insurance segment was 92.1% for the nine months ended September 30, 2003, compared to 105.8% for the nine months ended September 30, 2002. The components of the insurance segment's underwriting income or loss are discussed below.

Premiums Written. Gross premiums written for our insurance segment increased to $1.28 billion for the nine months ended September 30, 2003 from $358.7 million for the nine months ended September 30, 2002. Net premiums written for our insurance segment increased to $842.7 million for the nine months ended September 30, 2003, compared to $176.4 million for the nine months ended September 30, 2002. Contributing to this increase was a $231.9 million increase in program business and a $138.9 million increase in casualty business.

Set forth below is summary information regarding the insurance segment's net premiums written by major line of business:

		Nine Months Ended September 30,
		2003				2002
(in thousands)		Amount		% of Total		Amount		% of Total
		(Unaudited)
Major line of business:
	Net premiums written
	Programs	$	263,748	31.3	%	$	31,802	18.0	%
	Casualty		169,115	20.1	%		30,199	17.1	%
	Construction and surety		95,588	11.3	%		13,698	7.8	%
	Executive assurance		80,583	9.6	%		28,171	16.0	%
	Professional liability		77,538	9.2	%		7,630	4.3	%
	Property		77,511	9.2	%		23,683	13.4	%
	Healthcare		24,656	2.9	%		3,453	2.0	%
	Other		53,919	6.4	%		37,774	21.4	%

	Total	$	842,658	100.0	%	$	176,410	100.0	%

For information regarding net premiums written produced by geographic location, refer to note 4, "Segment Information," of the notes accompanying our consolidated financial statements.

Net Premiums Earned. Net premiums earned for our insurance segment increased to $589.9 million for the nine months ended September 30, 2003, compared to $69.6 million for the nine months ended September 30, 2002. Contributing to this increase was a $169.3 million increase in program business and a $103.0 million increase in casualty business.

Set forth below is summary information regarding the insurance segment's net premiums earned by major line of business:

		Nine Months Ended September 30,
		2003				2002
(in thousands)		Amount		% of Total		Amount		% of Total
		(Unaudited)
Major line of business:
	Net premiums earned
	Programs	$	182,872	31.0	%	$	13,564	19.5	%
	Casualty		108,671	18.4	%		5,697	8.2	%
	Executive assurance		59,509	10.1	%		7,159	10.3	%
	Property		57,349	9.7	%		5,699	8.2	%
	Construction and surety		51,402	8.7	%		1,593	2.3	%
	Professional liability		44,555	7.6	%		1,910	2.7	%
	Healthcare		26,797	4.5	%		327	0.5	%
	Other		58,774	10.0	%		33,656	48.3	%

	Total	$	589,929	100.0	%	$	69,605	100.0	%

Policy-Related Fee Income. Policy-related fee income for our insurance segment was $10.4 million for the nine months ended September 30, 2003, compared to $6.5 million for the nine months ended September 30, 2002. Such amounts were earned primarily in our non-standard automobile business.

Losses and Loss Adjustment Expenses. Insurance segment losses and loss adjustment expenses incurred for the nine months ended September 30, 2003 were $395.3 million, or 67.0% of net premiums earned, compared to $52.7 million, or 75.8%, for the nine months ended September 30, 2002. For a discussion of the reserves for losses and loss adjustment expenses, please refer to the section above entitled "—Critical Accounting Policies, Estimates and Recent Accounting Pronouncements—Reserves for Losses and Loss Adjustment Expenses."

Underwriting Expenses. The acquisition expense ratio was 10.5% for the nine months ended September 30, 2003 (net of 1.8 points of policy-related fee income), compared to (3.0%) for the nine months ended September 30, 2002 (net of 9.3 points of policy-related fee income). The increase in the acquisition expense ratio resulted from the increased contribution of business from our insurance segment's new areas of focus in the 2003 period and a reduction in ceding commissions due from unaffiliated reinsurers.

The other operating expense ratio for the nine months ended September 30, 2003 was 14.6%, compared to 33.0% for the nine months ended September 30, 2002. While aggregate operating expenses were higher for the nine months ended September 30, 2003 compared to the nine months ended September 30, 2002 in connection with the growth in gross premiums written, the operating expense ratio decreased primarily due to the growth in net premiums earned in the 2003 period.

Net Investment Income

Net investment income was $58.8 million for the nine months ended September 30, 2003, compared to $35.6 million for the nine months ended September 30, 2003. The increase in net investment income for the nine months ended September 30, 2003 was due to the significant increase in our invested assets primarily resulting from cash flow from operations in 2003 and 2002, which more than offset the effect of lower yields available in the financial markets in 2003 compared to 2002. Our pre-tax and after-tax investment yields, respectively, for the nine months ended September 30, 2003 were 3.0% and 2.7%, compared to 4.2% and 3.7% for the nine months ended September 30, 2002. These yields were calculated based on the amortized cost of the portfolio.

Net Realized Gains or Losses on Investments

Following is a summary of net realized investment gains (losses):

	Nine Months Ended September 30,
(in thousands)	2003		2002
	(Unaudited)
Fixed maturities	$	18,863	($	4,974	)
Privately held securities		693		5,877
Publicly traded equity securities		—		(728	)
Other		1,898		—

Total	$	21,454	$	175

Net realized gains in our fixed income portfolio during the nine months ended September 30, 2003 and 2002 resulted from the sale of certain securities to reduce credit exposure, and from sales related to rebalancing the portfolio. In addition, we recorded a realized gain, shown as "Other" in the table above, on proceeds received from a class action lawsuit related to a publicly traded equity security which we previously owned and for which we had recorded a significant realized loss in a prior year.

Other

Other income, generated by our investments in privately held securities accounted for under the equity method of accounting, amounted to $2.3 million for the nine months ended September 30, 2003, compared to $1.8 million for the nine months ended September 30, 2002.

Net Foreign Exchange Gains or Losses

Net foreign exchange gains for the nine months ended September 30, 2003 of $6,519,000 consisted of net unrealized gains of $4,859,000 and net realized gains of $1,660,000. Net foreign exchange gains for the nine months ended September 30, 2002 of $2,518,000 consisted of net unrealized gains of $911,000 and net realized gains of $1,607,000.

Non-Cash Compensation

Non-cash compensation expense for the nine months ended September 30, 2003 was $11.7 million, compared to $42.3 million for the nine months ended September 30, 2002. The 2002 amount reflected the accelerated vesting of certain restricted common shares granted to the chairman of our board of directors. See note 10, "Transactions with Related Parties," of the notes accompanying our consolidated financial statements.

Income Taxes

Our effective tax rate may fluctuate from period to period based on the relative mix of income reported by jurisdiction primarily due to the varying tax rates in each jurisdiction. Our tax provision for the nine months ended September 30, 2003 is based upon the expected annual effective tax rate of 11.4% on income before extraordinary items, excluding the reversal of a $773,000 valuation allowance, compared to 27.6% for the nine months ended September 30, 2002, excluding the reversal of a $7.4 million valuation allowance. The effective tax rate on income before extraordinary items, excluding the effect of net realized investment gains or losses, net foreign exchange gains or losses, other income, the reversal of deferred tax asset valuation allowances and non-cash compensation, was approximately 11.5% for the nine months ended September 30, 2003, compared to 5.4% for the nine months ended September 30, 2002. See note 9, "Income Taxes," of the notes accompanying our consolidated financial statements.

Liquidity and Capital Resources

ACGL is a holding company whose assets primarily consist of the shares in its subsidiaries. Generally, we depend on our available cash resources, liquid investments and dividends or other distributions from our subsidiaries to make payments, including the payment of operating expenses we may incur and for any dividends our board of directors may determine. ACGL does not currently intend to declare any dividends.

Pursuant to a shareholders agreement that we entered into in connection with the November 2001 capital infusion, we have agreed not to declare any dividend or make any other distribution on our common shares, and not to repurchase any common shares, until we have repurchased from funds affiliated with Warburg Pincus LLC ("Warburg Pincus Funds"), funds affiliated with Hellman & Friedman LLC ("Hellman & Friedman Funds") and the other holders of our preference shares, pro rata, on the basis of the amount of each of these shareholders' investment in us at the time of such repurchase, preference shares having an aggregate value of $250.0 million, at a per share price acceptable to these shareholders. See "—Book Value Per Share" for details on a post-closing purchase price adjustment to be calculated as soon as practicable following November 2003.

On a consolidated basis, our aggregate invested assets, including cash and short-term investments, totaled $3.37 billion at September 30, 2003. As of such date, ACGL's readily available cash, short-term investments and marketable securities, excluding amounts held by our regulated insurance and reinsurance subsidiaries, totaled $16.1 million.

The ability of our regulated insurance and reinsurance subsidiaries to pay dividends or make distributions is dependent on their ability to meet applicable regulatory standards. Under Bermuda law, Arch Reinsurance Ltd. ("Arch Re Bermuda") is required to maintain a minimum solvency margin ( i.e. , the amount by which the value of its general business assets must exceed its general business liabilities) equal to the greatest of (1) $100,000,000, (2) 50% of net premiums written (being gross premiums written by us less any premiums ceded by us, but we may not deduct more than 25% of gross premiums when computing net premiums written) and (3) 15% of loss and other insurance reserves. Arch Re Bermuda is prohibited from declaring or paying any dividends during any financial year if it is not in compliance with its minimum solvency margin. In addition, Arch Re Bermuda is prohibited from declaring or paying in any financial year dividends of more than 25% of its total statutory capital and surplus (as shown on its previous financial year's statutory balance sheet) unless it files, at least seven days before payment of such dividends, with the Bermuda Monetary Authority an affidavit stating that it will continue to meet the required margins. In addition, Arch Re Bermuda is prohibited, without prior approval of the Bermuda Monetary Authority, from reducing by 15% or more its total statutory capital, as set out in its previous year's financial statements. At December 31, 2002, Arch Re Bermuda had statutory capital and surplus as determined under Bermuda law of $1.2 billion (including ownership interests in its subsidiaries). Accordingly, 15% of Arch Re Bermuda's capital, or approximately $179 million, is available for dividends during 2003 without prior approval under Bermuda law, as discussed above. Our U.S. insurance and reinsurance subsidiaries, on a consolidated basis, may not pay any significant dividends or distributions during 2003 without prior regulatory approval. In addition, the ability of our insurance and reinsurance subsidiaries to pay dividends could be constrained by our dependence on financial strength ratings from independent rating agencies. Our ratings from these agencies depend to a large extent on the capitalization levels of our insurance and reinsurance subsidiaries.

ACGL, through its subsidiaries, provides financial support to certain of its insurance subsidiaries and affiliates, through certain reinsurance arrangements essential to the ratings of such subsidiaries. Except as described in the preceding sentence, or where express reinsurance, guarantee or other financial support contractual arrangements are in place, each of ACGL's subsidiaries or affiliates is solely responsible for its own liabilities and commitments (and no other ACGL subsidiary or affiliate is so responsible). Any reinsurance arrangements, guarantees or other financial support contractual arrangements that are in place are solely for the benefit of the ACGL subsidiary or affiliate involved and third parties (creditors or insureds of such entity) are not express beneficiaries of such arrangements.

Cash flow from operating activities on a consolidated basis are provided by premiums collected, fee income, investment income and collected reinsurance recoverables, offset by losses and loss adjustment expense payments, reinsurance premiums payable and operating costs. Consolidated cash provided by operating activities was $478.2 million for the 2003 third quarter, compared to $228.5 million for the 2002 third quarter. Operating cash flow for the nine months ended September 30, 2003 was $1.15 billion, compared to $342.2 million for the nine months ended September 30, 2002. The increase in cash flow in the 2003 periods compared to the 2002 periods was primarily due to the growth in premium volume and a relatively low level of claim payments due, in part, to the start-up nature of our insurance and reinsurance operations.

Our expanded underwriting activities will initially be supported by our capital, and we expect that our other operational needs for the foreseeable future will be met by our balance of cash and short-term investments, as well as by funds generated from underwriting activities and investment income and proceeds on the sale or maturity of our investments. In furtherance of our business strategy, we may seek to secure external financing from time to time and may also access the public capital markets.

In September 2003, we entered into an unsecured credit facility with a syndicate of banks which provides for the borrowing of up to $300.0 million. The credit facility is in the form of a 364-day revolving credit agreement that may be converted by us into a two-year term loan at expiration. On September 29, 2003, we borrowed $200.0 million under the credit facility at a fixed interest rate of approximately 2.44% through March 2004. The proceeds from such borrowings were contributed to our subsidiaries to support their underwriting

activities. In addition, we paid $1.3 million in fees in connection with the credit facility during the 2003 third quarter. Such fees were deferred and will be amortized over the loan period. The facility will be available to provide capital in support of our growing insurance and reinsurance businesses, as well as other general corporate purposes. We are required to comply with certain covenants under the credit facility agreement. These covenants require, among other things, that we maintain a debt to shareholders' equity ratio of not greater than 0.35 to 1 and shareholders' equity in excess of $1.0 billion plus 40% of future aggregate net income (not including any future net losses) and 40% of future aggregate capital raising proceeds, and that our principal insurance and reinsurance subsidiaries maintain at least a "B++" rating from A.M. Best. See "—Contractual Obligations and Commercial Commitments—Credit Line" for a description of the credit facility.

On November 3, 2003, the Company filed a universal shelf registration statement with the Securities and Exchange Commission. This registration statement, which replaces the Company's previous shelf registration statement with an unused portion of approximately $309 million, will allow for the possible future offer and sale by the Company of up to $500 million of various types of securities, including unsecured debt securities, preference shares, common shares, warrants, share purchase contracts and units and depositary shares. The shelf registration statement, once declared effective, will enable the Company to cost effectively and efficiently access public debt and/or equity capital markets in order to meet the Company's future capital needs. Any additional issuance of common shares by us could have the effect of diluting our earnings per share and our book value per share. In addition, the registration statement will allow selling shareholders to resell up to an aggregate of 9,892,594 common shares that they own (or may acquire upon the conversion of outstanding preference shares or warrants) in one or more offerings from time to time. The shareholders are registering their shares pursuant to registration rights previously granted in connection with the 2001 capital infusion. The Company will not receive any proceeds from the shares offered by the selling shareholders.

The registration statement on Form S-3 relating to these securities has been filed with the Securities and Exchange Commission but is not yet effective. Securities described in the registration statement may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This release is not an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state.

At September 30, 2003, our total capital of $1.84 billion consisted of revolving credit facility borrowings of $200.0 million, representing 10.9% of the total, and shareholders' equity of $1.64 billion, representing 89.1% of the total. At December 31, 2002, our total capital of $1.41 billion consisted of shareholders' equity with no borrowings outstanding. The increase in our total capital during 2003 was primarily attributable to the effects of net income for the nine months ended September 30, 2003 and the borrowings under our credit facility in September 2003.

Certain Matters Which May Materially Affect Our Results of Operations and/or Financial Condition

Reserves for Losses and Loss Adjustment Expenses

We establish reserves for losses and loss adjustment expenses which represent estimates involving actuarial and statistical projections, at a given point in time, of our expectations of the ultimate settlement and administration costs of losses incurred. Estimating loss reserves is inherently difficult, which is exacerbated by the fact that we are a new company with relatively limited historical experience upon which to base such estimates. We utilize actuarial models as well as available historical insurance industry loss ratio experience and loss development patterns to assist in the establishment of appropriate loss reserves. Actual losses and loss adjustment expenses paid will deviate, perhaps substantially, from the reserve estimates reflected in our financial statements. See the section above entitled "—Critical Accounting Policies, Estimates and Recent Accounting Pronouncements—Reserves for Losses and Loss Adjustment Expenses."

Reinsurance Protection and Recoverables

For purposes of limiting our risk of loss, we reinsure a portion of our exposures, paying to reinsurers a part of the premiums received on the policies we write, and we may also use retrocessional protection. For the nine months ended September 30, 2003, ceded premiums written represented approximately 14% of gross premiums written, compared to 15% for the year ended December 31, 2002. The decrease is primarily due to an increased retention of our insurance segment premiums written during 2003.

The availability and cost of reinsurance and retrocessional protection is subject to market conditions, which are beyond our control. Currently, the market for these arrangements is experiencing high demand for various products and it is not certain that we will be able to obtain adequate protection at cost effective levels. As a result of such market conditions and other factors, we may not be able to successfully mitigate risk through reinsurance and retrocessional arrangements. Further, we are subject to credit risk with respect to our reinsurers and retrocessionaires because the ceding of risk to reinsurers and retrocessionaires does not relieve us of our liability to the clients or companies we insure or reinsure. Our failure to establish adequate reinsurance or retrocessional arrangements or the failure of our existing reinsurance or retrocessional arrangements to protect us from overly concentrated risk exposure could adversely affect our financial condition and results of operations.

We monitor the financial condition of our reinsurers and attempt to place coverages only with substantial, financially sound carriers. At September 30, 2003, approximately 81% of our reinsurance recoverables on paid and unpaid losses of $376.0 million (not including prepaid reinsurance premiums) were due from carriers which had an A.M. Best rating of "A-" or better. Our recoverable on paid and unpaid losses from Sentry Insurance a Mutual Company represented 5.0% of our total shareholders' equity at September 30, 2003, as described below. No other reinsurance recoverables exceeded 5% of our total shareholders' equity.

The following table details our reinsurance recoverables at September 30, 2003:

	% of Total		A.M. Best Rating(1)
Sentry Insurance a Mutual Company(2)	21.8	%	A+
Alternative market recoverables(3)	10.5	%	NR
Lloyd's of London syndicates(4)	9.0	%	A-
Swiss Reinsurance America Corporation	5.7	%	A+
Employers Reinsurance Corporation	5.6	%	A
Everest Reinsurance Corporation	5.4	%	A+
Hartford Fire Insurance Company	4.6	%	A+
Folksamerica Reinsurance Company	3.2	%	A
Odyssey Reinsurance Corporation	2.8	%	A
Allied World Assurance Company Ltd.	2.2	%	A+
Lyndon Property Insurance Company(5)	2.1	%	A-
Gerling Global Reinsurance Corporation of America	2.0	%	NR
Lumbermens Mutual Casualty Company	1.2	%	D
AXA Corporate Solutions Reinsurance Company	1.0	%	B+
PMA Capital Insurance Company	0.9	%	B++
Trenwick America Reinsurance Corporation	0.2	%	NR
SCOR Reinsurance Company	0.2	%	B++
All other(6)	21.6	%

Total	100.0	%

(1): The financial strength ratings are as of November 6, 2003 and were assigned by A.M. Best based on its opinion of the insurer's financial strength as of such date. An explanation of the ratings listed in the table follows: the rating of "A+" is designated "Superior"; the "A" and "A-" ratings are designated

"Excellent"; ratings of "B++" and "B+" are designated "Very Good"; and the "D" rating is designated "Poor." Additionally, A.M. Best has five classifications within the "Not Rated" or "NR" category. Reasons for an "NR" rating being assigned by A.M. Best include insufficient data, size or operating experience, companies which are in run-off with no active business writings or are dormant, companies which disagree with their rating and request that a rating not be published or insurers that request not to be formally evaluated for the purposes of assigning a rating opinion.

(2): In connection with our acquisition of Arch Specialty Insurance Company ("Arch Specialty") in February 2002, the seller, Sentry Insurance a Mutual Company ("Sentry"), agreed to reinsure or otherwise assume all liabilities arising out of Arch Specialty's business prior to the closing of the acquisition. The balance due from Sentry includes all such amounts.
(3): Includes amounts recoverable from separate cell accounts in our alternative markets unit.
(4): The A.M. Best group rating of "A-" (Excellent) has been applied to all Lloyd's of London syndicates.
(5): In connection with our acquisition of Western Diversified Casualty Insurance Company ("Western Diversified") in June 2003, the seller, Western Diversified Services, Inc., a subsidiary of Protective Life Corporation, and certain of its affiliates (including Lyndon Property Insurance Company) agreed to reinsure or otherwise assume all liabilities arising out of Western Diversified's business prior to the closing of the acquisition. The balance due from Lyndon Property Insurance Company includes all such amounts.
(6): The following table provides a breakdown of the "All other" category by A.M. Best rating:

	% of Total
Companies rated "A-" or better	18.8	%
Companies not rated	2.8	%

Total	21.6	%

Natural and Man-Made Catastrophic Events

We have large aggregate exposures to natural and man-made catastrophic events. Catastrophes can be caused by various events, including, but not limited to, hurricanes, floods, windstorms, earthquakes, hailstorms, explosions, severe winter weather and fires. Catastrophes can also cause losses in non-property lines of business such as workers' compensation or general liability. In addition to the nature of property business, we believe that economic and geographic trends affecting insured property, including inflation, property value appreciation and geographic concentration tend to generally increase the size of losses from catastrophic events over time.

We have substantial exposure to unexpected, large losses resulting from future man-made catastrophic events, such as acts of war, acts of terrorism and political instability. These risks are inherently unpredictable and recent events may lead to increased frequency and severity of losses. It is difficult to predict the timing of such events with statistical certainty or estimate the amount of loss any given occurrence will generate. It is not possible to eliminate completely our exposure to unforecasted or unpredictable events and, to the extent that losses from such risks occur, our financial condition and results of operations could be materially adversely affected. Therefore, claims for natural and man-made catastrophic events could expose us to large losses and cause substantial volatility in our results of operations, which could cause the value of our common shares to fluctuate widely. In certain instances, we specifically insure and reinsure risks resulting from terrorism. Even in cases where we attempt to exclude losses from terrorism and certain other similar risks from some coverages written by us, we may not be successful in doing so. Moreover, irrespective of the clarity and inclusiveness of policy language, there can be no assurance that a court or arbitration panel will limit enforceability of policy language or otherwise issue a ruling adverse to us.

For our catastrophe exposed business, we seek to limit the amount of exposure we will assume from any one insured or reinsured and the amount of the exposure to catastrophe losses in any geographic zone. We monitor our exposure to catastrophic events, including earthquake, wind and specific terrorism exposures, and

periodically reevaluate the estimated probable maximum pre-tax loss for such exposures. Our estimated probable maximum pre-tax loss is determined through the use of modeling techniques, but such estimate does not represent our total potential loss for such exposures. We seek to limit the probable maximum pre-tax loss to a percentage of our total shareholders' equity for severe catastrophic events. Currently, we generally seek to limit the probable maximum pre-tax loss to approximately 25% of total shareholders' equity for a severe catastrophic event in any geographic zone that could be expected to occur once in every 250 years. There can be no assurances that we will not suffer pre-tax losses greater than 25% of our total shareholders' equity from one or more catastrophic events due to several factors, including the inherent uncertainties in estimating the frequency and severity of such events and the margin of error in making such determinations resulting from potential inaccuracies in the data provided by clients and brokers, the modeling techniques and the application of such techniques. In addition, depending on business opportunities and the mix of business that may comprise our insurance and reinsurance portfolio, we may seek to limit the probable maximum pre-tax loss to a higher percentage of our total shareholders' equity for our catastrophe exposed business.

For property catastrophe-related exposures from January 1, 2003 through September 30, 2003, our insurance operations entered into a reinsurance treaty which provides coverage for catastrophe-related losses equal to 95% of the first $70 million in excess of a $50 million retention of such losses. On October 1, 2003, our insurance operations increased their coverage for property catastrophe-related losses to 95% of the first $95 million in excess of a $50 million retention of such losses. In addition, our reinsurance operations have purchased reinsurance which primarily provides coverage for certain catastrophe-related losses in California and Florida. Recoveries under such reinsurance treaties are calculated based upon the size of insured industry losses. In the future, we may seek to purchase additional catastrophe or other reinsurance protection. The availability and cost of such reinsurance protection is subject to market conditions, which are beyond our control. As a result of market conditions and other factors, we may not be successful in obtaining such protection. See "—Reinsurance Protection and Recoverables" above.

Foreign Currency Exchange Rate Fluctuation

We write business on a worldwide basis, and our net income may be affected by fluctuations in the value of currencies other than the U.S. dollar. Changes in foreign currency exchange rates can reduce our revenues and increase our liabilities and costs, as measured in the U.S. dollar as our functional currency. We have not attempted to reduce our exposure to these exchange rate risks by using hedging transactions or by investing in securities denominated in local (foreign) currencies. We may therefore suffer losses solely as a result of exchange rate fluctuations.

Management and Operations

As a relatively new insurance and reinsurance company, our success will depend on our ability to integrate new management and operating personnel and to establish and maintain operating procedures and internal controls (including the timely and successful implementation of our information technology initiatives) to effectively support our business and our regulatory and reporting requirements, and no assurances can be given as to the success of these endeavors. Accordingly, we have been, and are continuing to, enhance our procedures and controls, including our control over financial reporting.

Shareholders Agreement

The Warburg Pincus funds and the Hellman & Friedman funds together control a majority of our voting power on a fully-diluted basis and have the right to nominate a majority of directors to our board under the shareholders agreement entered into in connection with the November 2001 capital infusion. The shareholders agreement also provides that we cannot engage in certain transactions, including mergers and acquisitions and transactions in excess of certain amounts, without the consent of a designee of the Warburg Pincus funds and a designee of the Hellman & Friedman funds. These provisions could have an effect on the operation of our business and, to the extent these provisions discourage takeover attempts, they could deprive our shareholders of opportunities to realize takeover premiums for their shares or could depress the market price of our common shares. By reason of their ownership and the shareholders agreement, the Warburg Pincus funds and the

Hellman & Friedman funds are able to strongly influence or effectively control actions to be taken by us. The interests of these shareholders may differ materially from the interests of the holders of our common shares, and these shareholders could take actions that are not in the interests of the holders of our common shares.

Contingencies Relating to the Sale of Prior Reinsurance Operations

See note 11, "Contingencies Relating to the Sale of Prior Reinsurance Operations," of the notes accompanying our consolidated financial statements.

Industry and Ratings

We operate in a highly competitive environment, and since the September 11, 2001 events, new capital has entered the market. These factors may mitigate the benefits that the financial markets may perceive for the property and casualty insurance industry, and we cannot offer any assurances that we will be able to compete successfully in our industry or that the intensity of competition in our industry will not erode profitability for insurance and reinsurance companies generally, including us. In addition, we can offer no assurances that we will participate at all or to the same extent as more established or other companies in any price increases or increased profitability in our industry. If we do not share in such price increases or increased profitability, our financial condition and results of operations could be materially adversely affected.

Financial strength and claims paying ratings from third party rating agencies are instrumental in establishing the competitive positions of companies in our industry. Periodically, rating agencies evaluate us to confirm that we continue to meet their criteria for the ratings assigned to us by them. Our reinsurance subsidiaries, Arch Reinsurance Company and Arch Re Bermuda, and our principal insurance subsidiaries, Arch Insurance Company, Arch Specialty and Arch Excess & Surplus Insurance Company, each currently have financial strength ratings of "A-" (Excellent) from A.M. Best. With respect to our non-standard automobile insurers, American Independent Insurance Company has a financial strength rating of "B+" (Very Good) from A.M. Best, and PSIC has a financial strength rating of "A-" (Excellent) from A.M. Best.

Rating agencies have been coming under increasing pressure as a result of high-profile corporate bankruptcies and may, as a result, increase their scrutiny of rated companies, revise their rating policies or take other action. We can offer no assurances that our ratings will remain at their current levels, or that our security will be accepted by brokers and our insureds and reinsureds. A ratings downgrade, or the potential for such a downgrade, could adversely affect both our relationships with agents, brokers, wholesalers and other distributors of our existing products and services and new sales of our products and services.

Contractual Obligations and Commercial Commitments

Letter of Credit Facility

On August 12, 2003, we renewed our letter of credit facility ("LOC Facility") for up to $250 million. The principal purpose of the LOC Facility is to issue, as required, evergreen standby letters of credit in favor of primary insurance or reinsurance counterparties with which we have entered into reinsurance arrangements to ensure that such counterparties are permitted to take credit for reinsurance obtained from our reinsurance subsidiaries in United States jurisdictions where such subsidiaries are not licensed or otherwise admitted as an insurer, as required under insurance regulations in the United States. The amount of letters of credit issued is driven by, among other things, the timing and payment of catastrophe losses, loss development of existing reserves, the payment pattern of such reserves, the further expansion of our business and the loss experience of such business.

When issued under the LOC Facility, such letters of credit are secured by a portion of our investment portfolio. In addition, the LOC Facility also requires the maintenance of certain financial covenants, with which we were in compliance at September 30, 2003. At such date, we had approximately $153.7 million in outstanding letters of credit under the LOC Facility which were secured by investments totaling $176.8 million. In addition to letters of credit, we have and may establish insurance trust accounts in the U.S. and Canada to secure our reinsurance amounts payable as required. At September 30, 2003, CAD $16.1 million had been set aside in Canadian trust accounts.

The LOC Facility expires on August 11, 2004. It is anticipated that the LOC Facility will be renewed (or replaced) on expiry, but such renewal (or replacement) will be subject to the availability of credit from banks which we utilize. In the event such support is insufficient, we could be required to provide alternative security to cedents. This could take the form of additional insurance trusts supported by our investment portfolio or funds withheld using our cash resources. If we are unable to post security in the form of letters of credit or trust funds when required under such regulations, our operations could be significantly and negatively affected.

Credit Line

On September 12, 2003, we entered into an unsecured credit facility with a syndicate of banks led by JPMorgan Chase Bank and Banc of America (the "Credit Facility"). The Credit Facility is in the form of a 364-day revolving credit agreement that may be converted by us into a two-year term loan at expiration. The Credit Facility provides for the borrowing of up to $300.0 million with interest at a rate selected by us equal to either (i) an adjusted London InterBank Offered Rate ("LIBOR") plus a margin or (ii) an alternate base rate ("Base Rate"). The Base Rate is the higher of the rate of interest established by JPMorgan Chase Bank as its prime rate or the Federal Funds rate plus 0.5% per annum. The payment terms for amounts converted into a term loan at expiration are as follows: 16.66% due 12 months following expiration, 16.67% due 18 months following expiration and 66.67% due 24 months following expiration. The facility will be available to provide capital in support of our growing insurance and reinsurance businesses, as well as other general corporate purposes.

We are required to comply with certain covenants under the Credit Facility agreement. These covenants require, among other things, that we maintain a debt to shareholders' equity ratio of not greater than 0.35 to 1 and shareholders' equity in excess of $1.0 billion plus 40% of future aggregate net income (not including any future net losses) and 40% of future aggregate capital raising proceeds, and that our principal insurance and reinsurance subsidiaries maintain at least a "B++" rating from A.M. Best. We were in compliance with all covenants contained in the Credit Facility agreement at September 30, 2003.

On September 29, 2003, we borrowed $200.0 million at a fixed interest rate of approximately 2.44% through March 2004. The proceeds of such borrowings were contributed to our subsidiaries to support their underwriting activities. In addition, we paid $1.3 million in fees in connection with the Credit Facility during the 2003 third quarter. Such fees were deferred and will be amortized over the loan period.

Investments

At September 30, 2003, consolidated cash and invested assets totaled $3.37 billion, consisting of $453.5 million of cash and short-term investments, $2.88 billion of publicly traded fixed maturity securities and $30.5 million of privately held securities. At September 30, 2003, our fixed income portfolio, which includes fixed maturity securities and short-term investments, had an average Standard & Poor's quality rating of "AA" and an average duration of 2.0 years. Our fixed income investment portfolio is currently managed by external investment advisors under our direction in accordance with investment guidelines provided by us. Our current guidelines stress preservation of capital, market liquidity and diversification of risk.

The following table summarizes the estimated fair value and carrying value and amortized cost of our fixed maturity securities and equity securities at September 30, 2003:

		September 30, 2003
(in thousands)		Estimated Fair Value and Carrying Value		Gross Unrealized Gains		Gross Unrealized (Losses)			Amortized Cost
		(Unaudited)
Fixed maturities:
	U.S. government and government agencies	$	1,048,870	$	10,364	$	(6	)	$	1,038,512
	Corporate bonds		1,092,475		35,205		(1,108	)		1,058,378
	Mortgage backed securities		115,992		3,591		—			112,401
	Asset backed securities		577,023		5,745		(734	)		572,012
	Municipal bonds		49,671		864		—			48,807

			2,884,031		55,769		(1,848	)		2,830,110
Equity securities:
	Privately held		30,486		3,499		—			26,987

	Total	$	2,914,517	$	59,268	$	(1,848	)	$	2,857,097

The following table presents the Standard & Poor's credit quality distribution of our fixed maturity securities at September 30, 2003:

(in thousands)	Estimated Fair Value and Carrying Value		% of Total
Fixed Maturities:
AAA	$	1,825,674	63.3	%
AA		151,480	5.2	%
A		686,157	23.8	%
BBB		220,720	7.7	%

Total	$	2,884,031	100.0	%

As part of our investment strategy, we seek to establish a level of cash and highly liquid short-term and intermediate-term securities which, combined with expected cash flow, is believed by us to be adequate to meet our foreseeable payment obligations. We currently do not utilize derivative financial instruments such as futures, forward contracts, swaps or options or other financial instruments with similar characteristics such as interest rate caps or floors and fixed-rate loan commitments. Our portfolio includes investments, such as mortgage-backed securities, which are subject to prepayment risk. Our investments in mortgage-backed securities, which amounted to approximately $116.0 million at September 30, 2003, or 3.4% of cash and invested assets, are classified as available for sale and are not held for trading purposes.

Our privately held equity securities consist of securities issued by privately held companies that are generally restricted as to resale or are otherwise illiquid and do not have readily ascertainable market values. The risk of investing in such securities is generally greater than the risk of investing in securities of widely held, publicly traded companies. At September 30, 2003, our private equity portfolio consisted of five investments totaling $30.5 million in fair value, with additional investment portfolio commitments in an aggregate amount of approximately $0.4 million. We do not currently intend to make any significant investments in privately held securities over and above our current commitments. See note 7, "Investment Information," of the notes accompanying our consolidated financial statements.

Book Value Per Share

The following book value per share calculations are based on shareholders' equity of $1.64 billion and $1.41 billion at September 30, 2003 and December 31, 2002, respectively. Book value per share excludes the effects of stock options and Class B warrants. Diluted per share book value at September 30, 2003 increased to $24.43 from $21.20 at December 31, 2002. The increase in diluted per share book value was primarily attributable to our net income for the nine months ended September 30, 2003.

	September 30, 2003			December 31, 2002
	Common Shares and Potential Common Shares	Cumulative Book Value Per Share		Common Shares and Potential Common Shares	Cumulative Book Value Per Share
	(Unaudited)
Common shares(1)	28,137,786	$	29.16	27,725,334	$	21.48
Series A convertible preference shares	38,844,665	$	24.43	38,844,665	$	21.20

Common shares and potential common shares	66,982,451			66,569,999

(1): Book value per common share at September 30, 2003 and December 31, 2002 was determined by dividing (i) the difference between total shareholders' equity and the aggregate liquidation preference of the Series A convertible preference shares of $815.7 million, by (ii) the number of common shares outstanding. Restricted common shares are included in the number of common shares outstanding as if such shares were issued on the date of grant.

Pursuant to the subscription agreement entered in connection with the November 2001 capital infusion (the "Subscription Agreement"), a post-closing purchase price adjustment will be calculated as soon as practicable following November 2003 based on an adjustment basket. The adjustment basket will be equal to (1) the difference between value realized upon sale and the GAAP book value at the closing of the capital infusion (November 2001) (as adjusted based on a pre-determined growth rate) of agreed upon non-core assets; plus (2) the difference between GAAP net book value of our insurance balances attributable to our core insurance operations with respect to any policy or contract written or having a specified effective date at the time of the final adjustment and those balances at the closing; minus (3) reductions in book value arising from costs and expenses relating to the transaction provided under the Subscription Agreement, actual losses arising out of breach of representations under the Subscription Agreement and certain other costs and expenses. If the adjustment basket is less than zero, we will issue additional preference shares to the investors based on the decrease in value of the components of the adjustment basket. If the adjustment basket is greater than zero, we are allowed to use cash in an amount based on the increase in value of the components of the adjustment basket to repurchase common shares (other than any common shares issued upon conversion of the preference shares or exercise of the Class A warrants). In addition, on the fourth anniversary of the closing, there will be a calculation of a further adjustment basket based on (1) liabilities owed to Folksamerica (if any) under the Asset Purchase Agreement, dated as of January 10, 2000, between us and Folksamerica, and (2) specified tax and ERISA matters under the Subscription Agreement.

Market Sensitive Instruments and Risk Management

In accordance with the SEC's Financial Reporting Release No. 48, we performed a sensitivity analysis to determine the effects that market risk exposures could have on the future earnings, fair values or cash flows of our financial instruments as of December 31, 2002. (See section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations—Market Sensitive Instruments and Risk Management" included in our 2002 Annual Report on Form 10-K.) Market risk represents the risk of changes in the fair value of a financial instrument and is comprised of several components, including liquidity, basis and

price risks. At September 30, 2003, material changes in market risk exposures that affect the quantitative and qualitative disclosures presented as of December 31, 2002 are as follows:

Interest Rate Risk

The aggregate hypothetical loss generated from an immediate parallel, adverse shift in the treasury yield curve of 100 basis points would have resulted in a decrease in market value of approximately $57.7 million on our fixed income portfolio as of September 30, 2003. Such amount would have, on a pre-tax basis, decreased diluted book value per share by approximately $0.86 as of September 30, 2003.

Foreign Currency Exchange Risk

Foreign currency rate risk is the potential change in value, income, and cash flow arising from adverse changes in foreign currency exchange rates. A 10% depreciation of the U.S. dollar against other currencies under our outstanding contracts at September 30, 2003 would have resulted in unrealized losses of approximately $16.7 million and would have decreased diluted earnings per share by approximately $0.25 for the nine months ended September 30, 2003. For further discussion on foreign exchange activity, please refer to "—Results of Operations—Net Foreign Exchange Gains or Losses."

Cautionary Note Regarding Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. This report or any other written or oral statements made by or on behalf of us may include forward-looking statements, which reflect our current views with respect to future events and financial performance. All statements other than statements of historical fact included in or incorporated by reference in this report are forward-looking statements. Forward-looking statements can generally be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe" or "continue" or their negative or variations or similar terminology.

Forward-looking statements involve our current assessment of risks and uncertainties. Actual events and results may differ materially from those expressed or implied in these statements. Important factors that could cause actual events or results to differ materially from those indicated in such statements are discussed below, elsewhere in this report and in our periodic reports filed with the SEC, and include:

•: our ability to successfully implement our business strategy, as described herein;
•: acceptance of our products and services and security by brokers and our insureds and reinsureds;
•: acceptance of our business strategy, security and financial condition by rating agencies and regulators;
•: general economic and market conditions (including inflation, interest rates and foreign currency exchange rates) and conditions specific to the reinsurance and insurance markets in which we operate;
•: current environment with respect to pricing and policy terms;
•: competition, including increased competition, on the basis of pricing, capacity, coverage terms or other factors;
•: our ability to successfully integrate new management and operating personnel and to establish and maintain operating procedures to effectively support our underwriting initiatives and to develop accurate actuarial data and develop and implement actuarial models and procedures;
•: the loss of key personnel;
•: the integration of businesses we have acquired or may acquire into our existing operations;
•: estimates and judgments, including those related to revenue recognition, insurance and other reserves, reinsurance recoverables, investment valuations, intangible assets, bad debts, income taxes, contingencies

and litigation, for a relatively new insurance and reinsurance company, like our company, are even more difficult to make than those made in a mature company since very limited historical information has been reported to us through September 30, 2003;

•: greater than expected loss ratios on business written by us and adverse development on reserves for losses and loss adjustment expenses related to business written by our insurance and reinsurance subsidiaries;
•: severity and/or frequency of losses;
•: claims for natural or man-made catastrophic events in our insurance or reinsurance business could cause large losses and substantial volatility in our results of operations;
•: acts of terrorism, political unrest and other hostilities or other unforecasted and unpredictable events;
•: losses relating to aviation business and business produced by a certain managing underwriting agency for which we may be liable to the purchaser of our prior reinsurance business or to others in connection with the May 5, 2000 asset sale;
•: availability to us of reinsurance to manage our gross and net exposures and the cost of such reinsurance;
•: the failure of reinsurers, managing general agents or others to meet their obligations to us;
•: the timing of loss payments being faster or the receipt of reinsurance recoverables being slower than anticipated by us;
•: changes in accounting principles or the application of such principles by accounting firms or regulators;
•: statutory or regulatory developments, including as to tax policy and matters and insurance and other regulatory matters (such as the adoption of proposed legislation that would affect Bermuda-headquartered companies and/or Bermuda-based insurers or reinsurers); and
•: rating agency policies and practices.

In addition, other general factors could affect our results, including: (a) developments in the world's financial and capital markets and our access to such markets; (b) changes in regulation or tax laws applicable to us, our subsidiaries, brokers or customers; and (c) the effects of business disruption or economic contraction due to terrorism or other hostilities.

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

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Reference is made to the information appearing above under the subheading "Market Sensitive Instruments and Risk Management" under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations," which information is hereby incorporated by reference.

CONTROLS AND PROCEDURES

In connection with the filing of this Form 10-Q, our management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective to provide reasonable assurance that all material information required to be filed in this quarterly report has been made known to them in a timely fashion. There have been no changes in internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal

control over financial reporting, other than as described under "Management's Discussion and Analysis of Financial Condition and Results of Operations—Certain Matters Which May Materially Affect Our Results of Operations and/or Financial Condition—Management and Operations."

Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. As a result of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons or by collusion of two or more people. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. As a result of the inherent limitations in a cost-effective control system, misstatement due to error or fraud may occur and not be detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the disclosure controls and procedures are met, and, as set forth above, the Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of September 30, 2003, that our disclosure controls and procedures were effective to provide reasonable assurance that the objectives of our disclosure control system were met.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We, in common with the insurance industry in general, are subject to litigation and arbitration in the normal course of our business. As of September 30, 2003, we were not a party to any material litigation or arbitration other than as a part of the ordinary course of business in relation to claims activity, none of which is expected by management to have a significant adverse effect on our results of operations and financial condition and liquidity.

Item 5. Other Information

In accord with Section 10a(i) (2) of the Exchange Act, we are responsible for disclosing non-audit services to be provided by our independent auditor, PricewaterhouseCoopers LLP, which are approved by the Audit Committee of our board of directors.

During the nine months ended September 30, 2003, the Audit Committee approved engagements of PricewaterhouseCoopers LLP for the following permitted non-audit services: tax services, tax consulting and tax compliance.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits.

Exhibit No.		Description
10.1		First Lease Modification Agreement, dated as of May 7, 2003, to the Lease Agreement, dated as of September 26, 2002 ("Lease"), between Arch Insurance Company ("Arch Insurance") and BFP One Liberty Plaza Co. LLC

10.2		Second Lease Modification Agreement, dated as of July 31, 2003, to the Lease
10.3		Sublease Surrender Agreement, dated as of July 31, 2003, between Arch Insurance and Folksamerica Reinsurance Company
10.4		First Amendment to the Arch Capital Group Ltd. ("ACGL") 2002 Long Term Incentive and Share Award Plan
10.5		Amended and Restated Letter of Credit and Reimbursement Agreement, dated as of August 12, 2003 ("Amended and Restated Letter of Credit"), by and among Arch Reinsurance Ltd., Arch Reinsurance Company, Alternative Re Limited, Arch Insurance, the lenders from time to time party thereto and Fleet National Bank
10.6		Amendment to Amended and Restated Letter of Credit, dated as of August 20, 2003
10.7		Credit Agreement, dated as of September 12, 2003, by and among ACGL, JP Morgan Chase Bank, as Administrative Agent, Bank of America, N.A., as Syndication Agent and Commerzbank AG, New York Branch, Credit Suisse First Boston, acting through its Cayman Islands Branch, and Wachovia Bank, National Association, as Documentation Agents
15		Accountants' Awareness Letter (regarding unaudited interim financial information)
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K.

ACGL submitted a report on Form 8-K during the 2003 third quarter on August 4, 2003 to furnish the 2003 second quarter earnings release issued by ACGL. ACGL also submitted a report on Form 8-K on November 3, 2003 to furnish the 2003 third quarter earnings release issued by ACGL. Since these reports contain information that was furnished, they are not incorporated by reference herein. In addition, ACGL submitted reports on Form 8-K on August 5, 2003 to file certain agreements related to recent management changes and on August 29, 2003 to report the voting results of its annual meeting held on May 21, 2003.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ARCH CAPITAL GROUP LTD. (REGISTRANT)
Date: November 12, 2003	/s/ Constantine Iordanou Constantine Iordanou President and Chief Executive Officer (Principal Executive Officer) and Director

Date: November 12, 2003	/s/ John D. Vollaro John D. Vollaro Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

EXHIBIT INDEX

Exhibit No.		Description
10.1		First Lease Modification Agreement, dated as of May 7, 2003, to the Lease Agreement, dated as of September 26, 2002 ("Lease"), between Arch Insurance Company ("Arch Insurance") and BFP One Liberty Plaza Co. LLC
10.2		Second Lease Modification Agreement, dated as of July 31, 2003, to the Lease
10.3		Sublease Surrender Agreement, dated as of July 31, 2003, between Arch Insurance and Folksamerica Reinsurance Company
10.4		First Amendment to the Arch Capital Group Ltd. ("ACGL") 2002 Long Term Incentive and Share Award Plan
10.5		Amended and Restated Letter of Credit and Reimbursement Agreement, dated as of August 12, 2003 ("Amended and Restated Letter of Credit"), by and among Arch Reinsurance Ltd., Arch Reinsurance Company, Alternative Re Limited, Arch Insurance, the lenders from time to time party thereto and Fleet National Bank
10.6		Amendment to Amended and Restated Letter of Credit, dated as of August 20, 2003
10.7		Credit Agreement, dated as of September 12, 2003, by and among ACGL, JP Morgan Chase Bank, as Administrative Agent, Bank of America, N.A., as Syndication Agent and Commerzbank AG, New York Branch, Credit Suisse First Boston, acting through its Cayman Islands Branch, and Wachovia Bank, National Association, as Documentation Agents
15		Accountants' Awareness Letter (regarding unaudited interim financial information)
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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ARCH CAPITAL GROUP LTD. INDEX
Report of Independent Accountants
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (in thousands, except share data)
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (in thousands)
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands)
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
ARCH CAPITAL GROUP LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
CONTROLS AND PROCEDURES

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 5. Other Information

Item 6. Exhibits and Reports on Form 8-K

SIGNATURES
EXHIBIT INDEX

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Exhibit 10.1

FIRST LEASE MODIFICATION AGREEMENT

FIRST LEASE MODIFICATION AGREEMENT (hereinafter called this " Agreement ") dated as of the 7th day of May, 2003 between BFP ONE LIBERTY PLAZA CO. LLC, having an office c/o Brookfield Financial Properties, Inc., One Liberty Plaza, 165 Broadway, New York, New York 10006 (hereinafter called " Landlord "), and ARCH INSURANCE COMPANY, a Missouri corporation, having an office at One Liberty Plaza, 165 Broadway, New York, New York 10006 (hereinafter called " Tenant ").

W I T N E S S E T H :

WHEREAS:

A. Landlord and Tenant have heretofore entered into a certain lease dated September 26, 2002 (such lease, as the same may have been and may hereafter be amended, being hereinafter called the " Lease "), with respect to entire rentable area of the fifty-third (53rd) floor (hereinafter called the " Premises ") in the building known as One Liberty Plaza, 165 Broadway, New York, New York (hereinafter called the " Building ") for a term expiring on September 30, 2012 or on such earlier date upon which said term may expire or be terminated pursuant to any conditions of limitation or other provisions of the Lease or pursuant to law; and

B. The parties hereto desire to modify the Lease to provide for the inclusion therein of additional space upon the terms and conditions hereinafter set forth.

NOW, THEREFORE, in consideration of the premises and mutual covenants hereinafter contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. All defined terms contained in this Agreement and not otherwise defined herein shall, for purposes hereof, have the same meanings ascribed to them in the Lease.

2. Effective as of the date on which (i) this Agreement has been executed by both Landlord and Tenant and a fully-executed counterpart thereof has been delivered to Tenant and (ii) possession of the Storage Space has been delivered to Tenant in the condition required pursuant to paragraph 5 hereof (such date being hereinafter called the " Inclusion Date ") and for the remainder of the term of the Lease, there shall be added to and included in the Premises the following additional space in the Building, to wit:

The portion of the concourse level of the Building substantially as shown hatched on the floor plan annexed hereto as Exhibit A (hereinafter called the " Storage

Space "), which Landlord and Tenant agree for purposes hereof shall be deemed to contain approximately 1,699 rentable square feet.

Landlord does hereby lease to Tenant and Tenant does hereby hire from Landlord the Storage Space subject and subordinate to all superior leases and superior mortgages as provided in the Lease and upon and subject to all the covenants, agreements, terms and conditions of the Lease as supplemented by this Agreement.

3. Effective during the period commencing on the Inclusion Date and ending on the Expiration Date, the Lease shall be modified as follows:

(a) The Fixed Rent payable pursuant to Section 1.04(a) of the Lease shall be increased by the sum of THIRTY-SEVEN THOUSAND THREE HUNDRED SEVENTY-EIGHT and 00/100 DOLLARS ($37,378.00) per annum [or Three Thousand One Hundred Fourteen and 83/100 Dollars ($3,114.83) per month] (hereinafter called the " Storage Space Fixed Rent ") on account of the inclusion of the Storage Space in the Premises, which rate is inclusive of the Storage Space Electric Factor, as such term is defined in paragraph 4 hereof, and is subject to increase as set forth therein. Notwithstanding the foregoing, provided that Tenant is not then in default under any of the terms, provisions or conditions of the Lease or this Agreement on Tenant's part to be performed after notice and the expiration of any applicable cure periods, the Storage Space Fixed Rent payable by Tenant hereunder, other than the portion thereof attributable to the Storage Space Electric Factor, shall be abated during the period commencing on the Inclusion Date and ending on the date occurring sixty (60) days thereafter (such that the monthly installment of Storage Space Fixed Rent payable by Tenant during such period shall be in the amount of $283.17 per month).

(b) In the event the term of the Lease shall be extended for the Extension Term (as defined in Article 36 of the Lease), the Storage Space Fixed Rent for the Extension Term shall be 100% of the fair market rent for the Storage Space during the Extension Term, determined in accordance with Article 36 of the Lease.

(c) In addition to the Tax Payments payable by Tenant pursuant to Article 3 of the Lease (hereinafter called the " Basic Tax Payments ") for the Premises demised to Tenant immediately prior to the execution of this Agreement, there shall be computed escalation payments with respect to increases of Taxes attributable to the Storage Space (hereinafter called the " Storage Space Tax Payments "). The Storage Space Tax Payments will be computed in the same manner as the Basic Tax Payments, except that for the purpose of such computations of Storage Space Tax Payments only:

(i) The Base Tax Amount, as defined in Section 3.01(b) of the Lease, shall mean one-half of the sum of (x) the Taxes for the Tax Year commencing on July 1, 2002, and (y) the Taxes for the Tax Year commencing on July 1, 2003; and

(ii) Tenant's Share, as defined in Section 3.01(i) of the Lease, shall mean eight one-hundredths percent (0.08%).

4. (a) Notwithstanding anything to the contrary set forth in Article 14 of the Lease (including without limitation Section 14.08 thereof), Landlord shall provide electric service to the Storage Space sufficient to provide adequate lighting thereof in connection with Tenant's of the Storage Space for the purposes permitted under paragraph 6(a) hereof, and such electric service shall be provided by Landlord on a "rent inclusion" basis and there shall be no separate charge to Tenant for such electric service. The rate of Storage Space Fixed Rent set forth in paragraph 3(a) hereof includes an allowance on account of the supply of electricity to the Storage Space (hereinafter called the " Storage Space Electric Factor "). As of the date of this Agreement, the Storage Space Electric Factor shall mean the sum of $3,398.00 per annum or $283.17 per month (calculated at the rate of $2.00 per rentable square foot of the Storage Space per annum). The foregoing rate initially established as the Storage Space Electric Factor (and, accordingly, the rate of Storage Space Fixed Rent set forth in paragraph 3(a) hereof) shall be subject to increase in accordance with Sections 14.04 through 14.06 of the Lease, but in no event shall the Storage Space Electric Factor be reduced below $3,398.00 per annum, nor shall the Storage Space Fixed Rent hereunder be reduced below the rate specified in paragraph 3(a) hereof, by virtue of the provisions of this paragraph 4(a).

(b) At Landlord's or Tenant's option, the parties shall execute, acknowledge and deliver to each other a supplemental agreement in such form as Landlord or Tenant, as the case may be, shall reasonably require to reflect each change in the Storage Space Fixed Rent under this paragraph, but in no event shall the parties' failure to do so affect the validity of any such change.

(c) Landlord reserves the right to discontinue furnishing electric energy to the Storage Space at any time upon not less than 30 days' notice to Tenant. If Landlord exercises such right, the Lease and this Agreement shall continue in full force and effect and shall be unaffected thereby, except that from and after the effective date of such termination Landlord shall not be obligated to furnish electric energy to the Storage Space and the Storage Space Fixed Rent payable hereunder shall be reduced by an amount equal to the Storage Space Electric Factor component of such Storage Space Fixed Rent. If Landlord so discontinues furnishing electric energy to the Storage Space, Tenant shall arrange to obtain electric energy directly from the public utility company servicing the Building. Tenant shall apply within thirty (30) days to such public utility company for direct electric service and bear all costs and expenses necessary to comply with all rules and regulations of such public utility company pertinent thereto, and Landlord shall be relieved of any further obligation to furnish electricity to the Storage Space pursuant to this paragraph, except Landlord shall permit its wires, conduits and electrical equipment, to the extent available, suitable and safely capable, to be used for such purpose. All meters and additional panel boards, feeders, risers, wiring and other conductors and equipment which may be required to obtain electric energy directly from

such public utility company shall be furnished and installed by Landlord at Tenant's expense.

5. Tenant agrees to accept the Storage Space in the condition and state of repair in which it exists as of the date hereof and understands and agrees that Landlord is not required to perform any work, supply any materials, incur any expense or provide any allowance or contribution in connection with preparing the Storage Space for Tenant's occupancy, except that (a) Landlord shall deliver the Storage Space to Tenant in "broom clean" condition on the Inclusion Date and (b) Landlord shall, on the Inclusion Date, provide Tenant with an ACP-5 certificate with respect to the Storage Space.

6. Subject to Article 11 and any other applicable provisions of the Lease, Tenant shall have the right to perform the following work in and to the Storage Space: (i) modification of existing light fixtures and/or installation of additional light fixtures (subject to the provisions of Article 14 of the Lease and paragraph 4 hereof), (ii) installation of a telephone and related telecommunications wiring, (iii) installation of a security camera, and (iv) installation of a security cage and keycard access security system (provided that Tenant shall provide Landlord with access cards as needed for any required access to the Storage Space), in each case subject to Landlord's review of Tenant's plans and specifications with respect to such work and Landlord's approval thereof in accordance with the provisions of Article 11 of the Lease.

7. Notwithstanding anything to the contrary contained in the Lease, Tenant agrees that Tenant's occupancy of the Storage Space shall be subject to the following additional terms and conditions:

(a) Tenant shall use the Storage Space for purposes of storage of files and unused office furniture and equipment only;

(b) Tenant may not assign its rights with respect to the Storage Space or sublease the same or allow the same to be used by others except in connection with a permitted assignment of all of Tenant's rights under the Lease or a permitted subletting of the entire Premises pursuant to Article 7 of the Lease; and

(c) Landlord shall not be responsible for the rendition or delivery of any services to the Storage Space whatsoever (including without limitation water, heat, ventilation, air-conditioning or cleaning), except that Landlord shall provide electrical service to the Storage Space in accordance with the provisions of paragraph 4 hereof and Landlord shall provide freight elevator service to the floor on which the Storage Space is located in accordance with the provisions of Section 15.02(c) of the Lease.

8. Landlord and Tenant each covenant, warrant and represent that no broker or agent except Insignia/ESG, Inc. (hereinafter called the " Broker ") was instrumental in bringing about or consummating this Agreement and that neither had any conversations or negotiations with any broker or agent except the Broker concerning the leasing of the

Storage Space. Tenant agrees to indemnify and hold harmless Landlord against and from any claims for any brokerage commissions and all costs, expenses and liabilities in connection therewith, including, without limitation, reasonable attorneys' fees and expenses, arising out of any conversations or negotiations had by Tenant with any broker or agent other than the Broker with respect to this Agreement. Landlord agrees to indemnify and hold harmless Tenant against and from any claims for any brokerage commissions and all costs, expenses and liabilities in connection therewith, including, without limitation, reasonable attorneys' fees and expenses, arising out of conversations or negotiations had by Landlord with any broker or agent other than the Broker with respect to this Agreement.

9. Except as modified by this Agreement, the Lease and all of the covenants, agreements, terms and conditions thereof shall remain in full force and effect and are hereby in all respects ratified and confirmed.

10. The covenants, agreements, terms, provisions and conditions contained in this Agreement shall be binding upon and enure to the benefit of the parties hereto and their respective successors and, except as otherwise provided in the Lease, their respective assigns.

11. This Agreement may not be changed or terminated orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, termination or discharge is sought.

12. This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

		BFP ONE LIBERTY PLAZA CO. LLC, Landlord
		By:	/s/ JEREMIAH B. LARKIN Name: Jeremiah B. Larkin Title: Senior Vice President, Director of Leasing
		ARCH INSURANCE COMPANY, Tenant
		By:	/s/ RAMIN TARAZ Name: Ramin Taraz Title: Controller

STATE OF NEW YORK	)
	)	ss.:
COUNTY OF NEW YORK	)

On the day of in the year 2003, before me, the undersigned, a Notary Public in and for said state, personally appeared , personally known to me or proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is (are) subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their capacity(ies), and that by his/her/their signature(s) on the instrument, the person(s) or the entity upon behalf of which the person(s) acted, executed the instrument.

Notary Public

STATE OF	)
	)	ss.:
COUNTY OF	)

Notary Public

EXHIBIT A
FLOOR PLAN OF STORAGE SPACE

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Exhibit 10.1

FIRST LEASE MODIFICATION AGREEMENT

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Exhibit 10.2

SECOND LEASE MODIFICATION AGREEMENT

SECOND LEASE MODIFICATION AGREEMENT (hereinafter called this " Agreement ") dated as of the 31st day of July, 2003 between BFP ONE LIBERTY PLAZA CO. LLC, having an office c/o Brookfield Financial Properties, Inc., One Liberty Plaza, 165 Broadway, New York, New York 10006 (hereinafter called " Landlord "), and ARCH INSURANCE COMPANY, a Missouri corporation, having an office at One Liberty Plaza, 165 Broadway, New York, New York 10006 (hereinafter called " Tenant ").

W I T N E S S E T H :

WHEREAS:

A. Landlord and Tenant have heretofore entered into a certain lease dated September 26, 2002, as amended by a First Lease Modification Agreement (hereinafter called the " First Modification ") dated as of May 7, 2003 (such lease, as the same has been and may hereafter be further amended, being hereinafter called the " Lease "), with respect to the entire rentable area of the fifty-third (53rd) floor and storage space located on the concourse level of the Building (hereinafter called the " Premises "), in the building known as One Liberty Plaza, 165 Broadway, New York, New York (hereinafter called the " Building ") for a term expiring on September 30, 2012, or on such earlier date upon which said term may expire or be terminated pursuant to any conditions of limitation or other provisions of the Lease or pursuant to law; and

B. Pursuant to that certain Agreement of Sublease dated as of December 15, 1999 (hereinafter called the " Prime Sublease ") between Generali-U.S. Branch (successor-in-interest to Generali Insurance Company of Trieste & Venice), a New York domiciled insurance company (hereinafter called " Prime Sublandlord "), as landlord, and Folksamerica Reinsurance Company (hereinafter called " Prime Subtenant "), as tenant, Prime Sublandlord leased to Prime Subtenant a portion of the twenty-ninth (29th) floor of the Building as shown on the plan annexed to the Prime Sublease as Exhibit A (hereinafter called the " Sublet Premises "), for a term scheduled to expire on December 30, 2009; and

C. Prime Subtenant then entered into a certain Sub-Sublease Agreement dated as of December 31, 2002 (hereinafter called the " Sub-Sublease Agreement ") with Tenant, as sub-subtenant, whereby Tenant subleased from Prime Subtenant the entire Sublet Premises for a term scheduled to expire on December 29, 2009; and

D. Concurrently herewith (x) Prime Subtenant and Tenant are entering into a surrender agreement (hereinafter called the " Sub-Sublease Surrender Agreement ") whereby Tenant shall surrender the Sublet Premises to Prime Subtenant effective as of 11:57 P.M. on July 31, 2003 (herein called the " Surrender Date ") and the Sub-Sublease shall terminate on the Surrender Date, and (y) Prime Sublandlord and Prime Subtenant are entering into a surrender agreement (hereinafter called the " Prime Sublease Surrender Agreement ") whereby Prime Subtenant shall surrender the Sublet Premises to Prime Sublandlord effective as of 11:58 P.M. on the Surrender Date and the Prime Sublease shall terminate on the Surrender Date; and

E. Landlord and Tenant hereby desire to modify the Lease to provide for the extension of the term thereof and the inclusion therein of additional space located on the seventeenth (17th) floor of the Building, upon and subject to the terms and conditions hereinafter more particularly set forth.

1. DEFINED TERMS. All capitalized terms contained in this Agreement and not otherwise defined herein shall, for purposes hereof, have the same meanings ascribed to them in the Lease.

2. EXTENSION OF TERM. The term of the Lease is hereby extended so that the Lease shall expire at 11:59 p.m. on January 31, 2014 (hereinafter called the " New Expiration Date "), or on such earlier date upon which said term may expire or be terminated pursuant to any conditions of limitation or other provisions of the Lease or pursuant to law. Landlord and Tenant hereby agree that (i) the extension of the term of the Lease effected hereby shall be on all of the same terms and conditions set forth therein with respect to the Premises originally demised to Tenant (i.e., the Premises exclusive of the "17th Floor Added Space", as such term is hereinafter defined in Paragraph 3 below), including that the Fixed Rent and Tax Payments and Operating Payments payable by Tenant (on an annualized basis) during the last year of the original lease term shall remain in effect, and (ii) the provisions of Article 36 of the Lease

(Extension of Term) shall remain in effect and shall apply to the Premises (inclusive of the 17th Floor Added Space).

3. ADDED SPACE. Effective as of August 1, 2003 (hereinafter called the " Added Space Date "), and for the remainder of the term of the Lease (as extended pursuant to Paragraph 2 above), there shall be added to and included in the Premises the following additional space in the Building, to wit:

The entire seventeenth (17th) floor of the Building, substantially as shown hatched on the floor plan annexed hereto as "Exhibit A," comprised of 18,041 rentable square feet (hereinafter called " Added Space A ") and 24,159 rentable square feet (hereinafter called " Added Space B "; Added Space A and Added Space B are sometimes hereinafter collectively referred to as the " 17th Floor Added Space "), it being acknowledged and agreed by Landlord and Tenant that the portions of the 17th Floor Added Space so designated as "Added Space A" and "Added Space B" are not separately demised and that such portions are so designated for purposes of describing the economic terms applicable to each such portion of the 17th Floor Added Space pursuant to paragraphs 4 and 5 hereof only.

Landlord does hereby lease to Tenant and Tenant does hereby hire from Landlord the 17th Floor Added Space subject and subordinate to all superior leases and superior mortgages as provided in the Lease and upon and subject to all the covenants, agreements, terms and conditions of the Lease as supplemented by this Agreement (other than Section 38.05 of the Lease and Paragraphs 4, 5, 6 and 8 of the First Modification).

4. LEASE MODIFICATION. Effective during the period commencing on the Added Space Date and ending on the New Expiration Date, the Lease shall be modified as follows:

(a) During the period beginning on the Added Space Date and ending on the New Expiration Date, the Fixed Rent payable pursuant to Section 1.04(a) of the Lease (as modified by Paragraph 3(a) of the First Modification) shall be increased on account of the inclusion of the 17th Floor Added Space by the following amounts during the following periods:

(i) ONE MILLION ONE HUNDRED EIGHTY-EIGHT THOUSAND THIRTY-ONE AND 00/100 ($1,188,031.00) DOLLARS per annum [or $99,002.58 per month], during the period beginning on the Added Space Date and ending on the last day of the month preceding the month in which occurs the fifth (5th) anniversary of the Added Space Date (calculated on an annual basis at the rate of $23 per rentable square foot [or $414,943] with respect to Added Space A and at the rate of $32 per rentable square foot [or $773,088] with respect to Added Space B, respectively);

(ii) ONE MILLION TWO HUNDRED EIGHTY-FOUR THOUSAND SIX HUNDRED SIXTY SEVEN AND 00/100 ($1,284,667.00) DOLLARS per annum [or $107,055.58 per month], during the period beginning on the first day of the month in which occurs the fifth (5th) anniversary of the Added Space Date and ending on December 31, 2009 (calculated on an annual basis at the rate of $23 per rentable square foot [or $414,943] with respect to Added Space A and at the rate of $36 per rentable square foot [or $869,724] with respect to Added Space B, respectively); and

(iii) ONE MILLION FIVE HUNDRED NINETEEN THOUSAND TWO HUNDRED AND 00/100 ($1,519,200.00) DOLLARS per annum [or $126,600.00 per month], during the period beginning on January 1, 2010 and ending on the New Expiration Date (calculated on an annual basis at the rate of $36 per rentable square foot with respect to the entire 17th Floor Added Space).

(b) With respect to the Additional Charges payable pursuant to Article 3 of the Lease (hereinafter called the " Basic Escalation Payments ") with respect to the Premises, there shall be computed, in addition to the Basic Escalation Payments, escalation payments with respect to increases on account of Taxes and Operating Expenses attributable to the 17th Floor Added Space. Additional Charges with respect to Taxes and Operating Expenses with respect to the 17th Floor Added Space shall be

computed in the same manner as adjustments of rent with respect to Taxes and Operating Expenses for the purpose of the Basic Escalation Payments, except that for the purpose of such computations with respect to the 17th Floor Added Space:

(i) The "Base Operating Amount", as such term is defined in Section 3.01(a) of the Lease, shall mean the Operating Expenses incurred for the Operating Year commencing on January 1, 2004;

(ii) The "Base Tax Amount", as such term is defined in Section 3.01(b) of the Lease (as modified by Paragraph 3(c)(i) of the First Modification), shall mean the sum of the Taxes for the Tax Year commencing on July 1, 2003 and ending on June 30, 2004, as finally determined; and

(iii) "Tenant's Share", as such term is defined in Section 3.01(i) of the Lease (as modified by Paragraph 3(c)(ii) of the First Modification), shall mean: (X) 0.8354 (0.8354%) percent with respect to Added Space A, and (Y) 1.1186 (1.1186%) percent with respect to Added Space B, respectively.

Notwithstanding anything to the contrary contained in the foregoing, the base years set forth in clauses (i) and (ii) above shall not apply with respect to Added Space A during the period beginning on the Added Space Date and ending on December 31, 2009, and during such period the following base years shall apply with respect to Added Space A only:

(i) The "Base Operating Amount", as such term is defined in Section 3.01(a) of the Lease, shall mean the Operating Expenses incurred for the Operating Year commencing on January 1, 2003; and

(ii) The "Base Tax Amount", as such term is defined in Section 3.01(b) of the Lease (as modified by Paragraph 3(c)(i) of the First Modification), shall mean one-half of the sum of (x) the Taxes for the Tax Year commencing on July 1, 2002 and (y) the Taxes for the Tax Year commencing on July 1, 2003, both as finally determined.

(c) Electrical service shall be supplied to the 17th Floor Added Space on a submetered basis in accordance with the terms and provisions of Article 14 of the Lease (except that for purposes hereof, Section 14.08 of the Lease shall be modified [as it

applies to the 17th Floor Added Space only] by deleting the words "seven (7) watts" set forth in line 2 of the first (1st) sentence and in line 3 of the second (2nd) sentence, respectively, and substituting the words "six (6) watts"), and Tenant agrees to purchase from Landlord or from a meter company designated by Landlord all electricity consumed, used or to be used in the 17th Floor Added Space in accordance with Article 14.

5. ADDED SPACE RENT ABATEMENT. Notwithstanding the foregoing provisions of subparagraph 4(a) above, provided that Tenant is not then in default, after notice and the expiration of any applicable cure periods, under any of the terms, provisions or conditions of the Lease (as modified hereby), the increase in the Fixed Rent payable hereunder with respect to Added Space B only shall be abated during the period (hereinafter called the " Added Space B Abatement Period ") commencing on the Added Space Date and ending on January 31, 2004; provided that Tenant shall pay the Additional Charges with respect to Added Space B during the Added Space B Abatement Period, including, without limitation, the Additional Charges attributable to Tenant's consumption of electricity in Added Space B pursuant to subparagraph 4(c) above. The day which immediately follows the last day of the Added Space B Abatement Period is hereinafter referred to as the " Added Space B Rent Commencement Date ".

6. CONDITION OF ADDED SPACE/LANDLORD'S WORK/TENANT'S EARLY ACCESS RIGHTS. Tenant agrees to accept the 17th Floor Added Space in the condition and state of repair in which it exists as of the date hereof and understands and agrees that Landlord is not required to perform any work, supply any materials, incur any expense or provide any allowance or contribution in connection with preparing the 17th

Floor Added Space for Tenant's occupancy, except that (a) Landlord shall, promptly after the date upon which this Agreement has been executed by both Landlord and Tenant and a fully-executed counterpart thereof has been delivered to Tenant, provide Tenant with an ACP-5 certificate from the New York City Building's Department with respect to the 17th Floor Added Space, and (b) Landlord shall, within thirty (30) days after election by either Landlord or Tenant by notice to the other, at Landlord's sole expense, enclose with sheetrock the existing internal stairway which connects the sixteenth (16th) and seventeenth (17th) floors of the Building (hereinafter called the " Existing Stairway "; such enclosure of the Existing Stairway and any and all related work necessary to comply with any applicable New York State and New York City building and fire codes being hereinafter called the " Stairway Enclosure Work "). Tenant shall cooperate, and shall cause its employees, agents and contractors to cooperate, with Landlord and its contractors in connection with the performance of the Stairway Enclosure Work. Tenant hereby acknowledges that the Stairway Enclosure Work may be performed at the same time that Tenant and its contractors are performing portions of Tenant's Added Space Work in the 17th Floor Added Space, and that Tenant may be inconvenienced and disturbed during the performance of the Stairway Enclosure Work, and Tenant agrees that Landlord shall have no liability to Tenant, nor shall Tenant be entitled to any diminution or abatement of rent or other compensation or allowance for diminution of rental value, nor shall the Lease or any of the obligations of Tenant be affected or reduced, as a result of any claimed interference with the performance of Tenant's Added Space Work or with Tenant's business during the performance by Landlord of the Stairway Enclosure Work pursuant to this Paragraph 6. Landlord agrees that it shall use

reasonable efforts to cause the Stairway Enclosure Work to be performed in a manner so as to minimize interference with the performance of Tenant's Added Space Work and/or the operation by Tenant of its business in the 17th Floor Added Space, provided that Landlord shall not be required to perform such work on an overtime or premium-pay basis. Subject to any applicable provisions of the Lease, Tenant shall have the right to enter the 17th Floor Added Space prior to the Added Space Date solely for the purposes of (x) allowing its contractors to install Tenant's telecommunications cabling and wiring, (y) performing cleaning in the 17th Floor Added Space (provided that Tenant shall retain Landlord's cleaning contractor to perform such cleaning) and (z) patching and tacking down damaged portions of carpeting in the 17th Floor Added Space that might otherwise pose a safety hazard to occupants of same (and not for the purpose of performing Tenant's Added Space Work or conducting Tenant's business therein, or for the use or occupancy thereof by Tenant's employees, agents or contractors except as aforesaid, or for any other purpose), provided that, in connection therewith, Tenant shall cooperate, and cause its contractors to cooperate, with Landlord and its contractors in connection with the performance of the Stairway Enclosure Work. Tenant hereby acknowledges and agrees that in no event shall Tenant or anyone claiming by, through or under Tenant, or any of their employees, agents or contractors, use the Existing Stairway to gain access to the sixteenth (16th) floor or otherwise use any portion of the sixteenth (16th) floor for any purpose whatsoever.

7. TENANT'S ADDED SPACE WORK/WORK ALLOWANCE.

(a) Tenant hereby covenants and agrees that Tenant shall, at Tenant's sole cost and expense, and in a good and workmanlike manner, make and complete the work

and installations in the 17th Floor Added Space (hereinafter called " Tenant's Added Space Work ") in accordance with the provisions set forth in Articles 11 and 38 of the Lease (other than the provisions of subparagraph 38.05 thereof), except that for purposes hereof, all references therein to the terms "Tenant's Work" and "Premises" shall be deemed to mean Tenant's Added Space Work and the 17th Floor Added Space, respectively.

(b) (1) In connection with the performance of Tenant's Added Space Work, Landlord shall allow Tenant a work allowance in the aggregate amount of $603,975.00 (hereinafter called the " Added Space Work Credit "), which Added Space Work Credit shall be applied solely against the cost and expense of the actual construction work to be performed by Tenant in connection with Tenant's Added Space Work to prepare the 17th Floor Added Space for Tenant's occupancy; provided that Tenant may use a portion of the Added Space Work Credit in the amount of up to $120,000.00 for design consultants, architect's and engineering fees incurred by Tenant in connection with the performance of Tenant's Added Space Work. In the event that the cost and expense of Tenant's Added Space Work shall exceed the amount of the Added Space Work Credit, Tenant shall be entirely responsible for such excess. If Tenant does not use all or any part of the Added Space Work Credit, then the Added Space Work Credit shall be reduced accordingly. Notwithstanding anything to the contrary contained in the foregoing, Landlord hereby agrees that Tenant may apply the Added Space Work Credit to pay for the cost of construction work to be performed by Tenant in any portion of the Premises including Tenant's existing space located on the fifty-third (53rd) floor of the Building, as well as toward the cost of the work to be performed by Tenant in the

17th Floor Added Space, provided that if Tenant so elects to apply the Added Space Work Credit to pay for the cost of construction work in other portion(s) of the Premises, the provisions of paragraph 7(a) hereof shall apply in connection with the performance of such construction work and the provisions of this paragraph 7(b) (other than this sentence) shall apply in connection with the Added Space Work Credit and the disbursement thereof as though the references in this paragraph 7 to "Tenant's Added Space Work" and the "17th Floor Added Space" were references to Tenant's construction work performed in the 17th Floor Added Space or elsewhere in the Premises and to the portion(s) of the Premises in which such construction work is performed, respectively.

(2) Provided that Tenant is not in default of any of the terms and conditions of the Lease, the Added Space Work Credit shall be payable by Landlord to Tenant in installments as Tenant's Added Space Work progresses, but in no event more frequently than monthly. Tenant shall deliver to Landlord a written request for disbursement (each called a " Tenant Requisition "), which shall be accompanied by: (1) paid invoices from the contractors and subcontractors performing the portion of Tenant's Added Space Work referenced in such Tenant Requisition, (2) a certificate signed by Tenant's architect and an officer of Tenant certifying that the portions of Tenant's Added Space Work represented by the aforesaid invoices and referenced in such Tenant Requisition has been satisfactorily completed in accordance with the Tenant's final plan with respect to Tenant's Added Space Work, as approved by Landlord, and (3) partial lien waivers (in recordable form and form satisfactory to Landlord) from the contractors, subcontractors and all materialmen who shall have performed any such work releasing Tenant from all liability for the same. Landlord shall be permitted to retain from each

disbursement an amount equal to five (5%) percent of the amount requested to be disbursed by Tenant. The aggregate amount of the retainages shall be paid by Landlord to Tenant upon completion of Tenant's Added Space Work and upon receipt from Tenant of (i) a certificate signed by Tenant's architect and an officer of Tenant certifying that Tenant's Added Space Work has been satisfactorily completed in accordance with Tenant's final plan, (ii) final "as-built" drawings as required pursuant to Section 11.08 of the Lease, and all sign-offs, inspection certificates and any permits required to be issued by the New York City Building Department, Fire Department and by any other governmental entities having jurisdiction thereover with respect to the 17th Floor Added Space, and (iii) a general release from all contractors and subcontractors performing Tenant's Added Space Work releasing Landlord and Tenant from all liability for any Tenant's Added Space Work.

(3) At any and all times during the progress of Tenant's Added Space Work, representatives of Landlord shall have the right of access to the 17th Floor Added Space and inspection thereof and Landlord shall have the right to withhold payment of any portion of the Added Space Work Credit representing the reasonably estimated cost of any such work not being performed in a manner reasonably satisfactory to Landlord; provided, however , that Landlord shall incur no liability, obligation or responsibility to Tenant or any third party by reason of such access and inspection.

(4) The Added Space Work Credit is being given for the benefit of Tenant only. No third party shall be permitted to make any claims against Landlord or Tenant with respect to any portion of the Added Space Work Credit.

8. TEMPORARY SPACE. Tenant shall have the right to occupy temporarily the portion of the Building located on the twenty-ninth (29th) floor as shown on Exhibit B annexed hereto (hereinafter called the " Temporary Space "), which constitutes the Sublet Premises which Tenant is currently occupying pursuant to the Sub-Sublease Agreement, for the period (hereinafter called the " Temporary Space Period ") commencing on August 1, 2003 (herein called the " Temporary Space Commencement Date ") and ending at 11:59 p.m. on October 31, 2003 (hereinafter called the " Temporary Space Surrender Date "), subject to the terms and conditions herein set forth.

(a) Tenant's use and occupancy of the Temporary Space shall be subject to all of the same terms and conditions as its use and occupancy of the Premises except that:

(i) Tenant acknowledges that it has been occupying the Temporary Space pursuant to the Sub-Sublease Agreement and that it agrees to accept the Temporary Space in its present "as is" condition on the Temporary Space Commencement Date, without requiring any alterations, improvements, repairs or decorations to be made by Landlord or at Landlord's expense, and Tenant agrees that it enters into this Agreement without any representations or warranties by Landlord, its employees, agents, representatives or servants or any other person as to the condition of the Temporary Space or the appurtenances thereof, or any improvements therein or thereon, or any other matters pertinent thereto.

(ii) There shall be no charge to Tenant for the use and occupancy of the Temporary Space during the Temporary Space Period, except that Tenant shall pay

for all utilities and services provided to the Temporary Space during the Temporary Space Period in accordance with the provisions of the Lease. Tenant hereby agrees that time shall be of the essence with respect to Tenant's obligation to vacate and surrender possession of the Temporary Space on or prior to the Temporary Space Surrender Date.

(b) Upon the Temporary Space Surrender Date, Tenant shall surrender and vacate the Temporary Space and shall remove therefrom in accordance with the provisions of the Lease, including without limitation Article 12 and Section 21.01 thereof. In the event that Tenant shall not vacate the Temporary Space and surrender the same to Landlord in the condition required under the Lease on or prior to the Temporary Space Surrender Date, then, without limiting Landlord's rights and remedies on account thereof, Landlord and Tenant hereby agree that Tenant's occupancy of the Temporary Space after the expiration of the Temporary Space Period shall be under a month-to-month tenancy commencing on the first day after the expiration of the Temporary Space Period, which tenancy shall be upon all of the terms set forth in the Lease (as amended by this Agreement) except Tenant shall pay to Landlord, as Additional Charges under the Lease, on the first day of each month of such holdover period, as an agreed upon rent for the use and occupancy of the Temporary Space (and not as a penalty of any sort), (x) during the period from November 1, 2003 through November 30, 2003, an amount equal to $48,109.33 per month (or $1,603.64 per diem), plus all Additional Charges payable by Tenant under the Lease for Tenant's use and occupancy of the Temporary Space (such as utilities and services provided to the Temporary Space), and (y) thereafter, if Tenant shall continue to remain in the Temporary Space beyond November 30, 2003, an amount equal to $96,218.67 per month (or $3,207.29 per diem) plus all Additional Charges payable by

Tenant under the Lease for Tenant's use and occupancy of the Temporary Space (such as utilities and services provided to the Temporary Space); provided, however, the provisions of this sentence shall not be deemed to create any right on the part of Tenant to remain in occupancy of the Temporary Space after the expiration or earlier termination of the Temporary Space Period. Notwithstanding the foregoing, provided that Tenant is not then in default, after notice and the expiration of any applicable cure periods, under any of the terms, provisions or conditions of the Lease (as modified hereby), the $48,109.33 per month charge payable by Tenant for its use and occupancy of the Temporary Space pursuant to clause (x) of the preceding sentence shall be abated during the period (if any) commencing on November 1, 2003 and ending on the earlier to occur of (A) November 30, 2003 and (B) the date upon which Landlord gives Tenant notice that it has entered into a lease with a third party covering the Temporary Space. In the event that Tenant shall remain in occupancy of the Temporary Space for a period of more than six (6) months after the Temporary Space Commencement Date (i.e., beyond January 31, 2004), Tenant shall continue to pay the same agreed upon rent as was payable by Tenant with respect to the Temporary Space during the month of January 2004, and Landlord may commence and prosecute a holdover or summary eviction proceeding against Tenant to obtain possession of the Temporary Space pursuant to Article 34 of the Lease, including, without limitation, the provisions of Section 34.01(c) thereof, and Tenant acknowledges and agrees that the acceptance of any rent paid by Tenant pursuant to this Paragraph 8(b) shall not preclude Landlord from commencing and prosecuting any such proceeding, nor shall the same be deemed to be an "agreement

expressly providing otherwise" within the meaning of Section 232-c of the Real Property Law of the State of New York.

9. EXISTING STAIRWAY. In the event that Landlord shall hereafter enter into a lease with a third party tenant covering the sixteenth (16th) floor of the Building (or the portion thereof where the Existing Stairway connects to the sixteenth (16th) floor), Landlord shall, at its sole expense, remove the Existing Stairway and shall reslab the floor slab openings on the 16th and 17th floors in connection therewith and perform any and all related work necessary to comply with any applicable New York State and New York City building and fire codes (herein called the " Stairway Removal Work "), which work shall be performed in compliance with all applicable laws, and in any such event, Tenant shall cooperate, and shall cause its employees and agents to cooperate, with Landlord and its contractors in connection with the performance of such work. Tenant hereby acknowledges and agrees that Tenant may be inconvenienced and disturbed during the performance of the Stairway Removal Work and Tenant agrees that Landlord shall have no liability to Tenant, nor shall Tenant be entitled to any diminution or abatement of rent or other compensation or allowance for diminution of rental value, nor shall the Lease or any of the obligations of Tenant be affected or reduced, as a result of any claimed interference with Tenant's business during the performance by Landlord of the Stairway Removal Work pursuant to this Paragraph 9. Landlord agrees that it shall use reasonable efforts to cause the Stairway Removal Work to be performed in a manner so as to minimize interference with the operation by Tenant of its business in the 17th Floor Added Space, provided that Landlord shall not be required to perform such work on an overtime or premium-pay basis.

10. BROKER. Landlord and Tenant each covenant, warrant and represent that no broker or agent except Insignia/ESG, Inc. (hereinafter called the " Broker ") was instrumental in bringing about or consummating this Agreement and that neither had any conversations or negotiations with any broker or agent except the Broker concerning the leasing of the 17th Floor Added Space. Tenant agrees to indemnify and hold harmless Landlord against and from any claims for any brokerage commissions and all costs, expenses and liabilities in connection therewith, including, without limitation, reasonable attorneys' fees and expenses, arising out of any conversations or negotiations had by Tenant with any broker or agent other than the Broker with respect to this Agreement. Landlord agrees to indemnify and hold harmless Tenant against and from any claims for any brokerage commissions and all costs, expenses and liabilities in connection therewith, including, without limitation, reasonable attorneys' fees and expenses, arising out of conversations or negotiations had by Landlord with any broker or agent other than the Broker with respect to this Agreement.

11. RATIFICATION OF LEASE TERMS. Except as modified by this Agreement, the Lease and all of the covenants, agreements, terms and conditions thereof shall remain in full force and effect and are hereby in all respects ratified and confirmed.

12. BINDING EFFECT. The covenants, agreements, terms, provisions and conditions contained in this Agreement shall be binding upon and enure to the benefit of the parties hereto and their respective successors and, except as otherwise provided in the Lease, their respective assigns.

13. WRITTEN MODIFICATIONS. This Agreement may not be changed or terminated orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, termination or discharge is sought.

14. GOVERNING LAW. This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York.

15. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall, when executed, be deemed to be an original and all of which shall be deemed to be one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

		BFP ONE LIBERTY PLAZA CO. LLC, Landlord
		By:	/s/ JEREMIAH B. LARKIN Name: Jeremiah B. Larkin Title: Senior Vice President, Director of Leasing
		ARCH INSURANCE COMPANY, a Missouri corporation, Tenant
		By:	/s/ MARK D. LYONS Name: Mark D. Lyons Title: Executive Vice President

ACKNOWLEDGEMENTS

STATE OF NEW YORK	)
	)	ss.:
COUNTY OF NEW YORK	)

Notary Public

EXHIBIT A
FLOOR PLAN OF 17TH FLOOR ADDED SPACE

EXHIBIT B
FLOOR PLAN OF 29TH FLOOR TEMPORARY SPACE

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Exhibit 10.2

SECOND LEASE MODIFICATION AGREEMENT
W I T N E S S E T H
ACKNOWLEDGEMENTS

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Exhibit 10.3

SUB-SUBLEASE SURRENDER AGREEMENT

SUB-SUBLEASE SURRENDER AGREEMENT (hereinafter called this " Surrender Agreement "), made as of this 31st day of July, 2003, by and between FOLKSAMERICA REINSURANCE COMPANY, a New York corporation, having an office at One Liberty Plaza, New York, New York 10006 (hereinafter called " Sublandlord ") and ARCH INSURANCE COMPANY, a Missouri corporation, having an office at One Liberty Plaza, New York, New York 10006 (hereinafter called " Subtenant ").

W I T N E S S E T H:

WHEREAS:

A. Pursuant to that certain lease dated as of December 1, 1988, as amended by that certain First Supplemental Agreement dated as of May 9, 1998 (said lease, as so amended, is hereafter collectively called the " Prime Lease "), between BFP One Liberty Plaza Co. LLC (successor-in-interest to Olympia & York OLP Company), as landlord (hereinafter called " Prime Landlord ") and Generali-U.S. Branch (successor-in-interest to Generali Insurance Company of Trieste & Venice), a New York domiciled insurance company, as tenant (hereinafter called " Prime Sublandlord "), Prime Landlord leased to Prime Sublandlord the entire twenty-ninth (29th) floor in the building known as One Liberty Plaza, 165 Broadway, New York, New York (hereinafter called the " Building "), for a term scheduled to expire on December 31, 2009 or on such earlier date

upon which said term may expire or be terminated pursuant to any conditions of limitation or other provisions of the Lease or pursuant to law;

B. Pursuant to that certain Agreement of Sublease dated as of December 15, 1999 (said sublease, as so consented to by Prime Landlord pursuant to that certain Consent to Sublease dated as of January 6, 2000, hereinafter called the " Prime Sublease "), between Prime Sublandlord, as landlord, and Sublandlord, as tenant, Prime Sublandlord leased to Sublandlord a portion of the twenty-ninth (29th) floor as shown on the plan annexed to the Prime Sublease as Exhibit A (hereinafter called the " Sublet Premises "), for a term scheduled to expire on December 30, 2009;

C. Sublandlord and Subtenant have heretofore entered into a certain Sub-Sublease Agreement dated as of December 31, 2002 (such sub-sublease, as so consented to by Prime Landlord pursuant to that certain Consent to Sub-Sublease dated as of December 31, 2002 is hereinafter referred to as the " Sublease ") with respect to the entire Sublet Premises for a term scheduled to expire on December 29, 2009; and

D. Subtenant desires to surrender the Sublet Premises and the Sublease to Sublandlord and Sublandlord is willing to accept such surrender in the manner and upon the terms and conditions hereinafter set forth.

1. All capitalized terms contained in this Surrender Agreement and not otherwise defined herein shall, for purposes hereof, have the same meanings ascribed to them in the Sublease.

2. Subtenant hereby surrenders to Sublandlord as of 11:57 P.M. on July 31, 2003 (hereinafter called the " Surrender Date "), the Sublease and the term and estate thereby granted, together with the Sublet Premises thereby demised, to the intent and purpose that the estate of Subtenant in and to the Sublet Premises shall be wholly extinguished and that the term of the Sublease shall expire on the Surrender Date in the same manner and with the same effect as if such date was the date set forth in the Sublease for the expiration of the term thereof.

3. Subtenant hereby represents and covenants that nothing has been or will be done or suffered whereby the Sublease, or the term or estate thereby granted or the Sublet Premises, or any part thereof, or any alterations, decorations, installations, additions and improvements in and to the Sublet Premises, or any part thereof, have been or will be encumbered in any way whatsoever, and that Subtenant owns and will own the Sublease and has and will have good right to surrender the same, and that no one other than Subtenant has acquired or will acquire through or under Subtenant any right, title or interest in or to the Sublet Premises, or any part thereof, or in or to said alterations, decorations, installations, additions and/or improvements or any part thereof. Sublandlord and Subtenant agree and acknowledge that (i) pursuant to a Second Lease Modification Agreement dated as of July 31, 2003 by and between Subtenant and Prime

Landlord, Subtenant has the right to occupy the Sublet Premises temporarily after the Surrender Date and (ii) Section 21.01 of the Prime Lease shall not apply.

4. Sublandlord shall accept such surrender as of the Surrender Date and in consideration of such surrender by Subtenant and of the acceptance of such surrender by Sublandlord, Subtenant and Sublandlord do hereby mutually release each other, their respective successors and assigns of and from any and all claims, damages, obligations, liabilities, actions and causes of action, of every kind and nature whatsoever arising under or in connection with the Sublease from and after the Surrender Date, except that nothing herein contained shall be deemed to constitute a release or discharge: (a) of Subtenant with respect to any obligation or liability accrued or incurred under the Sublease, up to and including and outstanding and unsatisfied on the Surrender Date, or (b) of Subtenant with respect to claims by Sublandlord against Subtenant for contribution or indemnification or both arising out of third-party claims against Sublandlord in accordance with the Sublease, or (c) of Sublandlord with respect to claims by Subtenant against Sublandlord for contribution or indemnification or both arising out of third-party claims against Subtenant in accordance with the Sublease, or (d) of either Subtenant or Sublandlord with respect to their obligations pursuant to this Surrender Agreement.

5. Sublandlord and Subtenant hereby acknowledge that, pursuant to paragraph 8 of the Sublease, (x) certain furniture was included in the Sublet Premises, including without limitation certain furniture (the " Secured Furniture ") that is subject to a Security Agreement dated as of August 23, 2000 between Sublandlord and General Electric Capital Corporation (the " Furniture Lease "), a list of which Secured Furniture

and a copy of which Furniture Lease are attached to the Sublease as Exhibit C-1 and Exhibit D, respectively, (y) upon the expiration of the Furniture Lease, Sublandlord is obligated to transfer ownership of the Secured Furniture to Subtenant in accordance with the terms of said paragraph 8 and (z) Sublandlord transferred to Subtenant, upon execution of the Sublease, certain furniture located in the Sublet Premises that is not covered by the Furniture Lease (the " Unsecured Furniture "), a list of which Unsecured Furniture is attached to the Sublease as Exhibit C-2. Without limiting any other provisions of this Surrender Agreement, (i) Subtenant hereby expressly waives all of its rights under paragraph 8 of the Sublease and any and all rights that it has or may have with respect to the Secured Furniture, (ii) Subtenant hereby transfers and conveys to Sublandlord the Unsecured Furniture concurrently with its surrender of the Sublet Premises pursuant to paragraph 2 hereof, and (iii) Subtenant agrees that it shall not remove any of the Secured Furniture or the Unsecured Furniture from the Sublet Premises and that it shall surrender the Sublet Premises on the Surrender Date with the Secured Furniture and the Unsecured Furniture in its "as is" condition as of the date hereof. The parties further acknowledge and agree that Subtenant shall have no further obligations to Sublandlord with respect to the Secured Furniture from and after the Surrender Date.

6. (a) Simultaneously with the execution of this Surrender Agreement, Sublandlord and Subtenant are executing the New York City Real Property Transfer Tax Return. Subtenant shall file same on the Surrender Date with the New York City Department of Finance and shall give Sublandlord notice of such filing. Subtenant

hereby agrees to pay on the Surrender Date, to the extent imposed with respect to the surrender of the Sublet Premises and this Surrender Agreement, any New York City Real Property Transfer Tax (hereinafter called " RPT Tax "). Subtenant further agrees to indemnify and hold Sublandlord harmless from any obligation for any RPT Tax and any loss, liability, cost or expense that Sublandlord may incur by reason of Subtenant's failure to pay same in a timely manner. The provisions of this subparagraph 6(a) shall survive the Surrender Date.

(b) Simultaneously with the execution of this Surrender Agreement, Sublandlord and Subtenant are completing (Schedules B and C) and executing the New York State Combined Real Estate Transfer Tax Return and Credit Line Mortgage Certificate (TP-584). Subtenant shall file the same on the Surrender Date with the New York State Department of Taxation and Finance. Subtenant hereby agrees to pay, on the Surrender Date, to the extent imposed with respect to the surrender of the Sublet Premises and this Surrender Agreement, any New York State Real Estate Transfer Tax (hereinafter called " Transfer Tax "). Subtenant further agrees to indemnify and hold Sublandlord harmless from any obligation for any Transfer Tax and any loss, liability, cost or expense that Sublandlord may incur by reason of Subtenant's failure to pay same in a timely manner. The provisions of this subparagraph 6(b) shall survive the Surrender Date.

7. Subtenant covenants, represents and warrants that Subtenant has had no dealings or communications with any broker or agent in connection herewith and Subtenant covenants and agrees to pay, hold harmless and indemnify Sublandlord from

and against any and all cost, expense (including reasonable attorneys' fees) or liability for any compensation, commissions or charges claimed by any broker or agent with respect hereto.

8. This Surrender Agreement may not be changed or terminated orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, termination, modification or discharge is sought.

9. The covenants, agreements, terms, provisions and conditions contained in this Surrender Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

10. This Surrender Agreement shall be governed by and interpreted in accordance with the laws of the State of New York.

11. This Surrender Agreement may be executed in any number of counterparts, each of which shall, when executed, be deemed to be an original and all of which shall be deemed to be one and the same instrument.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties hereto have respectively executed this Surrender Agreement as of the day and year first above written.

ATTEST:	FOLKSAMERICA REINSURANCE COMPANY, Sublandlord


	By:	/s/ JOHN H. HALEY Name: John H. Haley Title: SVP and Associate General Counsel

ATTEST:	ARCH INSURANCE COMPANY, Subtenant


	By:	/s/ MARK D. LYONS Name: Mark D. Lyons Title: Executive Vice President

Sublandlord Acknowledgment

STATE OF NEW YORK	)
	)	ss.:
COUNTY OF NEW YORK	)



		Notary Public

Subtenant Acknowledgment

STATE OF NEW YORK	)
	)	ss.:
COUNTY OF NEW YORK	)



		Notary Public

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SUB-SUBLEASE SURRENDER AGREEMENT
Sublandlord Acknowledgment
Subtenant Acknowledgment

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Exhibit 10.4

FIRST AMENDMENT TO ARCH CAPITAL GROUP LTD.

2002 LONG TERM INCENTIVE AND SHARE AWARD PLAN

The Arch Capital Group Ltd. 2002 Long Term Incentive and Share Award Plan is amended as follows, effective September 17, 2003.

1.: Sections 7(a) of the Plan is amended and restated to read as follows:

" Annual Grant . On January 1 of each year, each Director in office on such date shall automatically be granted a NQSO to purchase 1500 Shares with an exercise price per Share equal to 100% of the Market Value of one Share on the date of grant; provided, however, that such price shall be at least equal to the par value of a Share. Each Option granted to a Director under this paragraph (a) shall become fully exercisable on the first anniversary of the date the Option is granted, and shall expire (unless terminated earlier under paragraph (d) below) on the tenth anniversary of the date of grant. Notwithstanding the foregoing, effective September 17, 2003, no additional Director Options shall be issued under this Section 7(a)."

2.: Section 7(b) of the Plan is amended and restated to read as follows:

" Initial Grants . Each Director will automatically be granted a NQSO on the date he or she is first elected to the Board to purchase 300 Shares with an exercise price per Share equal to 100% of the Market Value of one Share on the date of grant; provided , however , that such price shall be at least equal to the par value of a Share. Each Option granted to a Director under this paragraph (b) shall become exercisable in three equal installments, commencing on the date of grant and annually thereafter. Each Option granted under this paragraph (b) shall expire (unless terminated earlier under paragraph (d) below) on the tenth anniversary of the date of grant. Notwithstanding the foregoing, effective September 17, 2003, no additional Director Options shall be issued under this Section 7(b)."

3.: The first sentence of Section 8 of the Plan is amended and restated to read as follows:

" Director's Shares . Each Director may make an election in writing to receive the Director's annual retainer fees payable annually in the form of Shares instead of cash at least ten (10) days prior to the payment of such annual retainer fee."

* * * * *

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Exhibit 10.4

FIRST AMENDMENT TO ARCH CAPITAL GROUP LTD. 2002 LONG TERM INCENTIVE AND SHARE AWARD PLAN

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Exhibit 10.5

AMENDED AND RESTATED LETTER OF CREDIT

AND

REIMBURSEMENT AGREEMENT

among

ARCH REINSURANCE LTD., as Obligor

ARCH REINSURANCE COMPANY, as Obligor

ALTERNATIVE RE LIMITED, as Obligor

ARCH INSURANCE COMPANY (formerly known as
First American Insurance Company), as Obligor

THE LENDERS FROM TIME TO TIME PARTY HERETO

and

FLEET NATIONAL BANK, as Agent and Issuing Lender

Dated as of April 17, 2002 and

Amended and Restated as of August 12, 2003


ARTICLE I DEFINITIONS AND INTERPRETATION			2
	Section 1.1	Definitions.	2
	Section 1.2	Interpretation.	8
ARTICLE II TERMS OF THE LETTER OF CREDIT FACILITY			9
	Section 2.1	The Letters of Credit.	9
	Section 2.2	Reimbursement; Lender's Responsibility.	10
	Section 2.3	Pro Rata Treatment.	11
	Section 2.4	Obligations of Issuing Lender.	11
	Section 2.5	Unconditional Obligations of the Obligors.	12
	Section 2.6	Regulatory Requirements; Additional Costs.	13
	Section 2.7	Fees.	13
	Section 2.8	Payments and Computations.	14
	Section 2.9	Failure to Pay the Agent.	16
	Section 2.10	Collateral Security.	16
ARTICLE III CONDITIONS OF ISSUANCE OF LETTERS OF CREDIT			17
	Section 3.1	Conditions Precedent to Closing and Issuance of Initial Letters of Credit	17
	Section 3.2	Additional Conditions Precedent to the Issuance of Letters of Credit	18
ARTICLE IV REPRESENTATIONS AND WARRANTIES			18
	Section 4.1	Corporate Existence and Power.	19
	Section 4.2	Authority.	19
	Section 4.3	Binding Effect of Agreement and Other Fundamental Documents	19
	Section 4.4	Financial Information.	20
	Section 4.5	Material Adverse Change; No Default.	20
	Section 4.6	Litigation	20
	Section 4.7	Compliance with Laws and Agreements	20
ARTICLE V COVENANTS			20
	Section 5.1	Affirmative Covenants.	20
ARTICLE VI EVENTS OF DEFAULT AND REMEDIES			23
	Section 6.1	Events of Default Defined.	23
	Section 6.2	Remedies.	25

ARTICLE VII THE AGENT.			26
	Section 7.1	Authorization and Action	26
	Section 7.2	Exculpatory Provisions; Agent's Reliance, Etc.	26
	Section 7.3	Notice of Default	27
	Section 7.4	Fleet and Affiliates	27
	Section 7.5	Credit Decision	27
	Section 7.6	Indemnification	28
	Section 7.7	Successor Agent	28
	Section 7.8	Application of this Article to the Obligors	28
ARTICLE VIII MISCELLANEOUS			29
	Section 8.1	Amendments and Waivers.	29
	Section 8.2	Assignment; Participations.	29
	Section 8.3	Addresses for Notices.	31
	Section 8.4	Successors and Assigns.	32
	Section 8.5	Payment of Expenses and Taxes.	33
	Section 8.6	Right of Set-Off.	33
	Section 8.7	Governing Law.	34
	Section 8.8	Consent to Jurisdiction.	34
	Section 8.9	Waiver of Jury Trial	34
	Section 8.10	Interest.	35
	Section 8.11	Table of Contents and Captions.	35
	Section 8.12	Integration.	35
	Section 8.13	Counterparts.	36

Exhibit A—Form of Letters of Credit
Exhibit B—Form of Security Agreement
Exhibit C—Form of Standby Letter of Credit Application
Exhibit D—Form of Assignment and Acceptance
Schedule 1—Existing Letters of Credit
Schedule 2—Commitments and Notice Addresses of Lenders

AMENDED AND RESTATED LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT

AMENDED AND RESTATED LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT dated as of April 17, 2002 and amended and restated as of August 12, 2003 (as further amended and supplemented from time to time, this "Agreement") by and among Arch Reinsurance Ltd. ("Reinsurance"), Arch Reinsurance Company ("Arch Company"), Alternative Re Limited ("Alternative") and Arch Insurance Company (formerly known as First American Insurance Company) ("Arch Insurance," each of Reinsurance, Arch Company, Alternative and Arch Insurance, individually, an "Obligor" and collectively, the "Obligors"), the lenders from time to time party to this Agreement (the "Lenders"), and Fleet National Bank ("Fleet"), as agent for the Lenders (when acting in such capacity and not as a Lender or the Issuing Lender, the "Agent") and as Issuing Lender (as defined below).

WHEREAS, Fleet and the Obligors entered into a Letter of Credit and Reimbursement Agreement dated as of April 17, 2002, which Letter of Credit and Reimbursement Agreement was amended as of November 4, 2002 pursuant to that certain Letter of Credit and Reimbursement Agreement Amendment No. 1, as of November 27, 2002 pursuant to that certain Letter of Credit and Reimbursement Agreement Amendment No. 2, as of January 1, 2003 pursuant to that certain Letter of Credit and Reimbursement Agreement Amendment No. 3, as of March 27, 2003 pursuant to that certain Letter of Credit and Reimbursement Agreement Amendment No. 4, and as of July 11, 2003 pursuant to that certain Letter of Credit and Reimbursement Agreement Amendment No. 5 (as so amended and in effect immediately prior to the Amendment Effective Date defined below, the "Existing Agreement");

WHEREAS, the Obligors have requested that the Facility be increased to an amount (including all Letter of Credit Obligations and Reimbursement Obligations for each Obligor) not to exceed $250,000,000 in the aggregate, and Fleet is amenable to such request provided that each of Barclays Bank and Comerica Bank become Lenders party to this Agreement with Commitments of $60,000,000 and $50,000,000, respectively;

WHEREAS, Fleet has prior to the date hereof issued Letters of Credit for the account of Reinsurance in the face amount of $162,234,763.58, for the account of Arch Company in the face amount of $10,060,571.05, and for the account of Arch Insurance in the face amount of $11,428,305.00, each of which are further identified on Schedule 1 hereto and remain outstanding on the date hereof (the "Existing Letters of Credit"), which Existing Letters of Credit remain outstanding and shall be deemed to have been issued hereunder and governed by the terms and conditions hereof;

NOW, THEREFORE, the parties hereto agree to amend and restate the Existing Agreement so that, as amended and restated, it provides in its entirety as follows:

ARTICLE I

DEFINITIONS AND INTERPRETATION

Section 1.1 Definitions .

Unless the context clearly otherwise requires, the following terms shall have the following respective meanings:

Adjusted Collateral Value means, with respect to any Obligor and at any date of determination, an amount equal to the sum of (A) (i) to the extent that such Investments are comprised solely of U.S. Government Securities, 90% of the market value of Investments in the Custodial Account established in the name of such Obligor, or (ii) to the extent that such Investments are not comprised solely of U.S. Government Securities, 86.96% of the market value of Investments in the Custodial Account established in the name of such Obligor, and (B) 100% of the amount of cash deposits in the Custodial Account established in the name of such Obligor. The Investments shall be "marked to market" by the Custodian on a daily basis but the Custodian shall provide only monthly reporting.

Affiliate means, as to any Person, any other Person which directly or indirectly controls, or is under common control with, or is controlled by, such Person. As used in this definition, "control" (including, with its correlative meanings, "controlled by" and "under common control with") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise), provided that , in any event: (i) any Person which owns directly or indirectly 20% or more of the securities having ordinary voting power for the election of directors or other governing body of a corporation or 20% or more of the partnership or other ownership interests of any other Person (other than as a limited partner of such other Person) will be deemed to control such corporation or other Person.

Aggregate Commitment means the sum of the Commitments of each of the Lenders.

Alternative means Alternative Re Limited, a Bermuda company.

Amendment Effective Date means the date on which all of the conditions set forth in Section 3.1 shall have been satisfied or waived by the Lenders and the Agent.

Applicable Insurance Regulatory Authority means the insurance department or similar administrative authority or agency that has the principal regulatory jurisdiction over an Obligor.

Arch Company means Arch Reinsurance Company, a Nebraska corporation.

Arch Insurance means Arch Insurance Company (formerly known as First American Insurance Company), a Missouri corporation.

Beneficiary means any Person designated a beneficiary of a Letter of Credit issued pursuant to this Agreement.

Business Day means any day other than a Saturday, Sunday or any other day on which commercial banks in Detroit, Michigan, Hartford, Connecticut or New York, New York are authorized or required to close.

Capital Lease means any lease which has been or should be capitalized on the books of the lessee in accordance with GAAP.

Capital Lease Obligations means, for any Person, all obligations of such Person to pay rent or other amounts under a Capital Lease. For purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP.

Closing means the delivery of the executed Fundamental Documents by the parties thereto on the Amendment Effective Date.

Closing Date means April 17, 2002.

Collateral has the definition set forth in Section 2.10.

Commitment means the obligation of each Lender to participate in the issuance, extension, modification or amendment of any Letters of Credit in an aggregate original face amount not to exceed the amount set forth opposite such Lender's name on the signature pages hereto.

Constituent Documents means, with respect to any Corporation, such Corporation's certificate of incorporation, memorandum of association or other similar document concerning the formation, organization and existence of such Corporation required under the laws of the jurisdiction of organization of such Corporation, and such Corporation's by-laws or other similar document required under the laws of such jurisdiction of organization.

Corporation includes companies, associations, corporations, partnerships, limited liability companies and other legal entities of all kinds.

Custodial Account shall have, with respect to any Obligor, the meaning set forth in the Security Agreement executed and delivered by such Obligor.

Custodian shall have the meaning set forth in the Custodian Agreement.

Custodian Agreement means, collectively, any of the Custody Agreements dated on or about the Closing Date between Fleet, as Custodian, and each of Alternative, Reinsurance, Arch Company and Arch Insurance, a copy of which has been or will be delivered to the Agent, as the same may be amended, supplemented, restated or otherwise modified from time to time.

Default means any event or condition specified in Section 6.1, which, upon the giving of notice, the lapse of time, or the happening of any further condition, would become an Event of Default.

Dollar Equivalent means, with respect to any monetary amount in a currency other than United States Dollars, at any date of determination thereof, the amount of United States Dollars obtained by converting such currency involved in such computation into United States Dollars at the spot rate for the purchase of United States Dollars with the applicable currency as published in the Financial Times (or any successor thereto) on the date of such determination.

Eligible Assignee means an Affiliate of a Lender or any commercial bank having total assets in excess of $3,000,000,000 as determined by the assigning Lender based on the most recent publicly available financial statements of such bank.

Event of Default has the definition set forth in Section 6.1.

Expiry Date means the date set forth in a Letter of Credit as the expiration date of such Letter of Credit, which is up to one year from the date of issuance of such Letter of Credit; provided with respect to a Five-Year Letter of Credit, such date may be up to five years from the date of issuance of such Five-Year Letter of Credit.

Facility means the Letters of Credit that the Issuing Lender is willing to issue under this Agreement as determined in its sole and absolute discretion in an amount (including all Letter of Credit Obligations and Reimbursement Obligations for each Obligor) not to exceed at the time of issuance of any Letter of Credit $250,000,000 (United States Dollars or the foreign currency Dollar Equivalent of any of the following G7 nations: Canada, the European Union, Japan and United Kingdom) in the aggregate.

Facility Termination Date means August 11, 2004.

Federal Funds Rate means, for any period, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (a) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if such rate is not so published for any Business Day, the Federal Funds Rate for such Business Day shall be the average rate charged to the Agent on such Business Day on such transactions as determined by the Agent.

Fees means, collectively, the fees set forth or referred to in Section 2.7.

Five-Year Letter of Credit means any Letter of Credit issued for the benefit of Lloyds of London or its affiliates under this Agreement having an expiry date five years from the date of issue.

Fundamental Documents means and includes each of the following for the time being in force:

(a) this Agreement;

(b) the Letters of Credit;

(d) the Custodian Agreement; and

(e) any other Security Documents.

GAAP shall mean U.S. generally accepted accounting principles in effect from time to time.

Guarantee means a guarantee, an endorsement, a contingent agreement to purchase or to furnish funds for the payment or maintenance of, or otherwise to be or become contingently liable under or with respect to, the Indebtedness, other obligations, net worth, working capital or earnings of any Person, or a guarantee of the payment of dividends or other distributions upon the stock or equity interests of any Person, or an agreement to purchase, sell or lease (as lessee or lessor) Property, products, materials, supplies or services primarily for the purpose of enabling a debtor to make payment of such debtor's obligations or an agreement to assure a creditor against loss, and including, without limitation, causing a bank or other financial institution to issue a letter of credit or other similar instrument for the benefit of another Person, but excluding endorsements for collection or deposit in the ordinary course of business. The terms "Guarantee" and "Guaranteed" used as a verb shall have a correlative meaning.

Indebtedness means, for any Person: (a) obligations created, issued or incurred by such Person for borrowed money (whether by loan, the issuance and sale of debt securities or the sale of Property to another Person subject to an understanding or agreement, contingent or otherwise, to repurchase such Property from such Person); (b) obligations of such Person to pay the deferred purchase or acquisition price of Property or services, other than trade accounts payable (other than for borrowed money) arising, and accrued expenses incurred, in the ordinary course of business; (c) indebtedness of others secured by a Lien on the Property of such Person, whether or not the respective indebtedness so secured has been assumed by such Person; (d) obligations of such Person in respect of letters of credit or similar instruments issued or accepted by banks and other financial institutions for account of such Person; (e) Capital Lease Obligations of such Person; (f) Guarantees by such Person of Indebtedness of others; (g) Rate Hedging Obligations of such Person; and (h) any other obligation for borrowed money or other financial accommodation which in accordance with GAAP or SAP, as applicable, would be shown as a liability on the consolidated balance sheet of such Person.

Interest Rate means the rate of interest per annum equal to two percentage points (2%) above the Prime Rate from time to time in effect, not to exceed the maximum rate of interest permitted by applicable law.

Investment means (i) U.S. Government Securities and (ii) debt securities of corporate issuers which (x) are denominated in United States Dollars, (y) in the aggregate have an average weighted minimum rating of not less than AA- by S&P and Aa3 by Moody's and (z) individually

have a minimum rating of not less than BBB by S&P and Baa2 by Moody's, provided , however , that, for purposes of the foregoing clause (ii) and with respect to each Obligor, no more than 10% of the aggregate Investments maintained in the Custodial Account established in the name of such Obligor may consist of debt securities of corporate issuers with a rating of A or BBB by S&P and A or Baa by Moody's.

ISP means the International Standby Practices (ISP 1998), International Chamber of Commerce Publication No. 590.

Issuing Lender means Fleet in its capacity as the Letter of Credit issuing Lender.

Lenders mean the banks and other financial institutions that are or become parties to this Agreement and each of their respective successors and permitted assigns, including the Issuing Lender.

Letter(s) of Credit means the irrevocable standby letters of credit issued under this Agreement, including the Existing Letters of Credit.

Letter of Credit Obligations means, with respect to any Obligor, as at any date of determination thereof, on an aggregate basis for all Letters of Credit issued at the request of such Obligor, the maximum amount that could be drawn by the Beneficiaries of such Letters of Credit (assuming, notwithstanding any provision of a Letter of Credit to the contrary, that such Beneficiary was then entitled to draw the full amount remaining available thereunder) but which has not been drawn as of that date (for purposes of any Letters of Credit denominated in the currency of Canada, the European Union, Japan or the United Kingdom, the maximum amount that could be drawn by the Beneficiaries of such Letters of Credit shall be deemed to be the Dollar Equivalent of such amount as of such date).

Lien means, with respect to any Property, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such Property. For purposes of this Agreement, a Person shall be deemed to own subject to a Lien any Property that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement (other than an operating lease) relating to such Property.

Majority Lenders means, on any date of determination, Lenders which collectively have on such date Pro Rata Shares of at least 66 and ² / 3 % in the aggregate, provided , however , that notwithstanding the foregoing, in no event shall fewer than two (2) of the Lenders be deemed to constitute the Majority Lenders.

Moody's means Moody's Investor Service, Inc. or any successor thereto.

Net Worth means the excess of total assets over total liabilities of any Person which shall be determined on a consolidated basis in accordance with GAAP.

Obligor means, individually, each of Alternative, Reinsurance, Arch Company and Arch Insurance.

Parent means Arch Capital Group Ltd., a Bermuda company.

Person means and includes an individual, a partnership, trust, estate, corporation, company, unincorporated organization, limited liability company and a government or any agency, instrumentality or political subdivision thereof.

Prime Rate means the variable per annum rate of interest so designated from time to time by the Agent as its prime rate. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate being charged to any customer. Changes in the rate of interest resulting from changes in the Prime Rate shall take place immediately without notice or demand of any kind.

Prohibited Transaction means any transaction set forth in Section 406 of ERISA or Section 4975 of the Internal Revenue Code for which there is no applicable statutory or regulatory exemption (including a class exemption or an individual exemption).

Pro Rata Share means, with respect to each Lender, the percentage participation of such Lender in the Aggregate Commitment, as set forth on Schedule 2 hereto, provided , however , that with respect to any portion of a drawing for which the Issuing Lender has not requested that the other Lenders pay to the Issuing Lender their respective Pro Rata Shares of such drawing in accordance with Section 2.1(c) hereof, and solely for purpose of allocating the repayment of any such drawing (and not for the purpose of allocating any fees payable hereunder or any voting or consent rights provided hereunder), the Issuing Lender's Pro Rata Share shall be deemed to be 100% and the Pro Rata Share of each of the other Lenders shall be deemed to be 0%.

Property means any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible.

Rate Hedging Obligations means, for any Person, any and all net obligations of such Person, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (a) any agreements, devices or arrangements designed to protect at least one of the parties thereto from the fluctuations of interest rates, exchange rates or forward rates applicable to such party's assets, liabilities or exchange transactions, including but not limited to, dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts and warrants, or any similar derivative transactions, and (b) any and all cancellations, buy backs, reversals, terminations or assignments of any of the foregoing.

Reimbursement Obligations means, with respect to any Obligor, all obligations of such Obligor pursuant to Section 2.2 to reimburse the Agent for the account of the Issuing Lender and, subject to Section 2.3(a), the other Lenders, for payments made by the Lenders upon any drawings under any Letter of Credit issued at the request of such Obligor and to pay to the Agent for the account of the Issuing Lender and, subject to Section 2.3(a), the other Lenders, all other amounts that are payable by such Obligor to the Lenders pursuant to this Agreement and the

other Fundamental Documents. For purposes of drawings under any Letters of Credit denominated in the currency of Canada, the European Union, Japan or the United Kingdom, the amount of such drawing shall be deemed to be the Dollar Equivalent of such amount as of the date of repayment of such drawing, provided , however , that, solely for the purpose of determining an Obligor's compliance with the requirements of Section 5.1(c) hereof and Section 1 of the applicable Security Agreement on any given date, the amount of any such unreimbursed drawing shall be deemed to be the Dollar Equivalent of such amount as of such date.

Reinsurance means Arch Reinsurance Ltd., a Bermuda company.

Responsible Officer means, with respect to the Agent and any Lender, the Person or Persons to whom for the time being communications are required to be addressed pursuant to the provisions of any relevant document, and with respect to any Corporation other than the Agent or any Lender, any director, chairman of the Board of Directors, the managing director, any deputy managing director, the president, any vice president, the secretary, any assistant secretary, the treasurer, any assistant treasurer or any attorney-in-fact authorized to perform functions similar to those performed by any of the above-mentioned officers.

SAP means the accounting procedures and practices prescribed or permitted by the Applicable Insurance Regulatory Authority, applied on a basis consistent with those that are to be used in making the calculations for purposes of determining compliance with this Agreement.

SAP Financial Statements means the financial statements of an Obligor which have been submitted or are required to be submitted to the Applicable Insurance Regulatory Authority.

S&P shall mean Standard & Poor's Rating Services, a division of The McGraw Hill Companies, Inc. or any successor thereto.

Security Agreement means, collectively, each of the Amended and Restated Security Agreements dated on or about the date hereof, substantially in the form of Exhibit B hereto, between the Agent and each Obligor, as the same may be amended, supplemented, restated or otherwise modified from time to time securing its obligations under this Agreement and the Letters of Credit.

Security Documents means, collectively, the Security Agreement and each other instrument or agreement that secures or guarantees the Reimbursement Obligations.

Tax means any present or future tax, rate, duty, impost, governmental charge or levy, including, without limitation thereto, any corporation, income (other than any taxes imposed on or measured by the gross income or profits of any Lender), value added, capital gains, sales, transfer, use, excise, occupation, franchise, property, stamp or other tax or duty and any license, registration and recording fee and all penalties, fines, interest imposed, assessed or otherwise payable in respect of any of the foregoing and all deductions or withholdings required to be made in respect of any of the foregoing levied, assessed, charged or required by any government or taxing authority in any country.

U.S. Government Securities means securities that are direct obligations of, and obligations the timely payment of principal and interest on which is fully guaranteed by, the United States, or any agency or instrumentality of the United States the obligations of which are backed by the full faith and credit of the United States and in the form of conventional bills, bonds, and notes. In no event shall U.S. Government Securities include any security providing for the payment of interest only.

Section 1.2 Interpretation .

(a) The terms "hereof," "hereunder" and "herein" refer to this Agreement as a whole.

(b) References by number to Sections, Schedules and Exhibits refer to the Sections, Schedules and Exhibits of this Agreement unless otherwise stated.

(c) The singular form of any word also refers to the plural form of such word, and vice versa, and any word of any particular gender includes the correlative words of the other genders.

(d) Any references in this Agreement to one or more items preceded by the word "including" shall not be deemed limited to the stated items but shall be deemed without limitation.

ARTICLE II

TERMS OF THE LETTER OF CREDIT FACILITY

Section 2.1 The Letters of Credit .

(a) On the terms and subject to the further conditions hereinafter set forth and upon satisfaction of the conditions set forth in Article III, the Issuing Lender hereby agrees to issue on and after the Amendment Effective Date Letters of Credit, each dated the date of its issuance, substantially in the form of Exhibit A hereto and in the aggregate issued at any one time in a face amount not to exceed $250,000,000 (United States Dollars)(provided that at the time of issuance of any Five-Year Letter of Credit the face amount of all Five-Year Letters of Credit outstanding after giving effect to the issuance thereof in the aggregate shall not exceed $110,000,000 (United State Dollars)). and so long as (after giving effect to the issuance of the requested Letter of Credit) the Adjusted Collateral Value for any Obligor is not less than the sum of all amounts then outstanding with respect to the Letter of Credit Obligations and Reimbursement Obligations for such Obligor, as more specifically set forth below in Section 2.1(b). Each such Letter of Credit shall be irrevocable and, unless its terms provide otherwise, shall expire on the Expiry Date. Each such Letter of Credit (other than the Five-Year Letters of Credit) shall contain language substantially as follows: "This Letter of Credit shall be deemed automatically extended without amendment for one year from the expiration date or any future expiration date, unless thirty (30) days prior to any expiration date, we notify you by registered mail that this Letter of Credit will not be renewed for any such additional period." So long as any Letter of Credit (including any Five-Year Letter of Credit) is outstanding and has not expired, this Agreement shall continue to be in full force and effect with respect to such Letter of Credit, provided , however , that no Letter

of Credit shall be renewed, nor shall any Letter of Credit be issued, on or after the Facility Termination Date.

(b) An Obligor may, from time to time, request that the Issuing Lender issue Letters of Credit during the period from the date hereof to but not including the Facility Termination Date in an aggregate face amount (together with the Letter of Credit Obligations and Reimbursement Obligations for such Obligor) at any time issued up to but not exceeding the Facility; provided however, (i) the aggregate amount of Letter of Credit Obligations and Reimbursement Obligations for such Obligor at any time issued shall not exceed the Adjusted Collateral Value for such Obligor and (ii) the aggregate face amount of all Letters of Credit issued under this Agreement, at the time of issuance of any Letter of Credit, shall not exceed $250,000,000 (United States Dollars). The Obligor shall make such request by executing and delivering to the Agent and the Issuing Lender the Issuing Lender's then standard form standby letter of credit application and related documentation (in hardcopy and/or electronic format acceptable to the Issuing Lender). The current standard form standby letter of credit application is attached as Exhibit C hereto. If there shall exist any inconsistency between the terms of this Agreement (and the Security Documents) and any such documentation relating to a Letter of Credit issued under this Section 2.1(b), the terms of this Agreement (and the Security Documents) shall control. The Agent shall, on a monthly basis, provide each of the Lenders with a schedule identifying each issued and outstanding Letter of Credit, on an Obligor-by-Obligor basis, which schedule shall separately identify any Five-Year Letters of Credit.

(c) Each of the other Lenders severally agrees to participate with the Issuing Lender in the extension of credit arising from the issuance of the Letters of Credit in an amount equal to such Lender's Pro Rata Share of such extension of credit, and the issuance of a Letter of Credit shall be deemed a confirmation to the Issuing Lender of such participation in such amount. The Issuing Lender shall request that the other Lenders pay to the Issuing Lender their respective Pro Rata Shares of any unreimbursed draw under any Letter of Credit by contacting each Lender telephonically at any time after the Issuing Lender has received notice of or request for such draw, and specifying the amount of such draw, such Lender's Pro Rata Share thereof, and the date on which such draw is to be made or was made, provided , however , that the Issuing Lender shall not request the other Lenders to make any payment under this Section 2.1(c) in connection with any portion of a draw for which the Issuing Lender has been reimbursed by the applicable Obligor (unless such reimbursement has been thereafter rescinded or recovered by the applicable Obligor). Upon receipt of any request for payment from the Issuing Lender, each of the other Lenders shall pay to the Issuing Lender such Lender's Pro Rata Share of the unreimbursed portion of such draw, together with, if such amount is not paid to the Issuing Lender within one (1) Business Day of the Issuing Lender's request for payment, interest thereon at a per annum rate equal to the Federal Funds Rate from the date of such draw to the date on which such Lender makes payment. Each Lender's obligation to make such payment to the Issuing Lender shall be absolute, unconditional and irrevocable and shall not be affected by any circumstance whatsoever, including the occurrence or continuance of any Event of Default, or the failure of any other Lender to make any payment under this Section 2.1(c), and each Lender further agrees that such payment shall be made without any offset, abatement, withholding or reduction whatsoever.

(d) The Existing Letters of Credit shall be deemed to have been issued pursuant to the terms of Section 2.1(a) hereof and shall be participated in by the Lenders as set forth in Section 2.1(c). This Agreement shall constitute all of the terms and conditions with respect to the Existing Letters of Credit and supersedes any and all prior agreements, oral or written (other than the Existing Letters of Credit themselves and the related standby letter of credit applications, each of which shall remain in full force and effect), between the Issuing Lender and the Obligors with respect to the Existing Letters of Credit.

Section 2.2 Reimbursement; Lender's Responsibility.

(a) The Issuing Lender shall notify the Agent, the other Lenders and the applicable Obligor of a drawing under any Letter of Credit issued at the request of such Obligor on or prior to the date of payment of such drawing by contacting the Agent, the other Lenders and such Obligor telephonically. Reimbursement by such Obligor of the amount of each such drawing is due and payable in full (i) on the same day that the Issuing Lender honors such drawing, if the foregoing notice is received before 1:00 p.m. (Connecticut time) on the date of such drawing or (ii) on the Business Day immediately following the date of such drawing, if the foregoing notice is received after 1:00 p.m. (Connecticut time) on the date of such drawing, and each Obligor absolutely and unconditionally agrees to pay or cause to be paid to the Agent, for the account of the Issuing Lender and, subject to Section 2.3(a), the other Lenders, on such date, without demand, the amount of any drawing under a Letter of Credit issued at the request of such Obligor.

(b) Each Obligor, absolutely and unconditionally, agrees to pay, or cause to be paid, to the Agent for the account of the Issuing Lender and, subject to Section 2.3(a), the other Lenders, on demand, interest at the Interest Rate on any amount (including on overdue interest to the extent permitted by law) due by such Obligor hereunder that is not paid when due, for each day such amount is unpaid.

(c) Except as set forth in Section 2.7 and Section 8.5(a), each Obligor shall be liable to the Agent and the Lenders only for those amounts that are incurred by the Lenders hereunder or under the Security Agreement executed by such Obligor and shall have no liability for the obligations of any other Obligor, it being acknowledged and agreed by the Agent and the Lenders that the execution and delivery of this Agreement by more than one Obligor is for purposes of convenience only and that each Obligor is deemed to have entered into a completely separate reimbursement and security arrangement with the Agent and the Lenders and with no other parties.

Section 2.3 Pro Rata Treatment.

(a) Except as otherwise provided herein, (i) the Letter of Credit Obligations and the Reimbursement Obligations shall be made or allocated among the Lenders pro rata according to their respective Pro Rata Shares, (ii) each payment of the Reimbursement Obligations and interest thereon shall be made or shared among the Lenders pro rata according to their respective Pro Rata Shares and (iii) each payment of the fees hereunder (other than the Letter of Credit issuance fees described in Sections 2.7(a)(i), (ii) and (iii) hereof, which shall be allocated among

the Lenders as specifically provided in such Sections, and the charges, costs and fees described in Section 2.7(v) hereof, which shall be retained by the Issuing Lender) shall be shared among the Lenders pro rata according to their respective Pro Rata Shares.

(b) If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of setoff, or otherwise) on account of the Reimbursement Obligations due to it (other than pursuant to Section 2.6) in excess of its Pro Rata Share of payments on account of the Reimbursement Obligations due to all of the Lenders, such Lender shall forthwith purchase from the other Lenders such participation in the Reimbursement Obligations as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided , however , that if all or any portion of such excess payment is then recovered from such purchasing Lender, such purchase from such Lender shall be rescinded and each other Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery, together with an amount equal to such Lender's ratable share (according to the proportion of (i) the amount of such Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. Each Obligor agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.3(b) may, to the fullest extent permitted by law, exercise all of its rights of payment (including the right of setoff) with respect to such participation as fully as if such Lender were the direct creditor of the Obligor in the amount of such participation.

Section 2.4 Obligations of Issuing Lender.

Whenever the Issuing Lender receives a demand for payment under a Letter of Credit, it will promptly examine the demand to determine whether or not it is in conformity with such Letter of Credit under which it is presented.

Section 2.5 Unconditional Obligations of the Obligors.

Each Obligor agrees with the Agent and the Lenders that the following provisions shall apply with respect to each Letter of Credit issued for its account:

(a): Except as otherwise expressly stated in any Letter of Credit, but without limiting any provision of this Agreement or any Letter of Credit, there may be accepted or honored as complying with such Letter of Credit any documents of any character that comply with the provisions and interpretations contained in the ISP.
(b): Neither the Agent, the Issuing Lender, any other Lender nor any of their respective correspondents or agents shall be responsible for: (i) the truth or accuracy of any statement contained in any document received under the Letters of Credit; (ii) the validity, sufficiency or genuineness of any such document believed by the Issuing Lender in good faith and in the exercise of ordinary care to be valid, even if wholly fraudulent or forged; (iii) any breach of contract between an Obligor or any other Person and the beneficiary of any Letter of Credit; (iv) interruptions or delays in the transmission or delivery of messages, by

mail, courier service or electronic means, whether in cipher or not; (v) any errors or omissions in the translation of any document; (vi) failure or delay in giving any notice or in complying with any other formality; (vii) delay in arrival or failure to arrive of any property or required instrument or document; (viii) failure of any document to bear adequate reference to a Letter of Credit, or failure of any Person to note the amount of any payment on the reverse side of a Letter of Credit or to surrender or to take up a Letter of Credit or to send forward documents as required by the terms of a Letter of Credit, each of which provisions, if contained in a Letter of Credit itself, it is agreed may be waived by the Issuing Lender; (ix) the fact that any instructions, oral or written, given to the Issuing Lender purporting to have been given by or on behalf of any Obligor and believed by the Issuing Lender in good faith and in the exercise of ordinary care to be valid which pertain to the issuance of any Letter of Credit, any extension, increase or other modification of any Letter of Credit or other action to be taken or omitted with reference thereto, were wholly or partly insufficient, erroneous, unauthorized or fraudulent; or (x) any other act or omission as to which banks are relieved from responsibility under the terms of the ISP, provided that none of the contingencies referred to in subparagraphs (i) through (x) of this paragraph (b) is attributable to the gross negligence or willful misconduct of the Issuing Lender or any of its correspondents or agents, provided , further , that the Agent and the Lenders (other than the Issuing Lender) shall have no liability for and shall not be responsible for the gross negligence or willful misconduct of the Issuing Lender or any of its correspondents or agents; but the happening of any one or more of such contingencies shall not affect, impair or prevent the vesting of any of the rights or powers of the Agent, the Issuing Lender, or any other Lender hereunder.

(c): Each Obligor will, without expense to the Agent, the Issuing Lender, or any other Lender, procure or cause to be procured promptly all necessary licenses which are required with respect to the transaction(s) which is/are the subject of any Letter of Credit issued for such Obligor or to which any such Letter of Credit relates, will comply with or cause to be complied with all applicable governmental regulations in regard thereto, and will furnish or cause to be furnished to the Agent such documents and certificates in respect thereof as the Agent and/or the Issuing Lender may reasonably require.
(d): Each Obligor hereby agrees to indemnify and hold harmless the Agent, the Issuing Lender and each of the other Lenders from and against all liability, loss or expense (including reasonable legal fees, court costs and other expenses which the Agent, the Issuing Lender or such other Lenders may incur in enforcing their rights hereunder) incurred as a consequence of (i) any failure on the part of such Obligor duly to perform its agreements contained in this Section 2.5, (ii) any action taken or omitted by the Issuing Lender or any of its correspondents in relation to any Letter of Credit issued at the request of or on behalf of such Obligor, or (iii) any claims asserted by any party to any transaction in connection with which such Letters of Credit are issued, except such liability, loss or

expense, if any, as is incurred as a result of the gross negligence or willful misconduct on the part of the Issuing Lender or of any of its correspondents.

Section 2.6 Regulatory Requirements; Additional Costs.

Each Obligor shall pay to the Lenders from time to time upon demand such amounts as any of the Lenders determines in its sole discretion is necessary to compensate such Lender for any costs attributable to the Issuing Lender's issuing or having outstanding, or such Lender's participation in, or such Lender's making payment under, any Letter of Credit issued at the request of such Obligor resulting from the application of any domestic or foreign law or regulation or the interpretation or administration thereof applicable to such Lender regarding any reserve, assessment, capitalization (including the cost of maintaining capital sufficient to permit issuance of the Letters of Credit, provided the cost attributed to the Letters of Credit is determined in good faith by any reasonable method) or similar requirement whether existing at the time of issuance of any such Letter of Credit or adopted thereafter, including, without limitation, any reduction in amounts receivable hereunder as a result of any change in applicable law, treaty, regulation, policy or directive, or the imposition of any Tax or increase in any existing Tax, applicable to the transactions contemplated hereunder or the commitments of the Lenders hereunder.

Section 2.7 Fees.

(a) Each Obligor agrees to pay the following fees with respect to Letters of Credit issued at the request of such Obligor:

(i) a Letter of Credit issuance fee payable quarterly in arrears (and calculated based upon a 360-day year and actual days elapsed) on the last Business Day of each March, June, September and December with respect to each Letter of Credit outstanding during such quarter (other than a Five-Year Letter of Credit) in an amount equal to .50% per annum of the maximum face amount of such Letter of Credit, which Letter of Credit issuance fee shall be payable to the Agent for the account of the Issuing Lender and the other Lenders and, notwithstanding Section 2.3(a) hereof, shall be distributed (for the period after the Amendment Effective Date only; all amounts payable with respect to the period from July 1, 2003 through the Amendment Effective Date to be retained by the Agent) among the Lenders as follows: (A) to the Issuing Lender, an amount equal to .50% per annum of the Issuing Lender's Pro Rata Share of the maximum face amount of such Letter of Credit and an amount equal to .05% per annum of the other Lenders' Pro Rata Shares of the maximum face amount of such Letter of Credit, and (B) to each of the other Lenders, an amount equal to .45% per annum of such Lender's Pro Rata Share of the maximum face amount of such Letter of Credit;

(ii) notwithstanding Section 2.7(a)(i) hereof, in the event that either Alternative or Arch Insurance requests the issuance of a Letter of Credit (other than a Five-Year Letter of Credit) hereunder and the Collateral consists solely of U.S. Government Securities, the Letter of Credit issuance fee payable quarterly in arrears with respect to such Letter of Credit shall be an amount equal to .30% per annum (calculated based upon a 360-day year and actual days elapsed) of the maximum face amount of the Letter of Credit, which Letter of Credit

issuance fee shall be payable to the Agent for the account of the Issuing Lender and the other Lenders and, notwithstanding Section 2.3(a) hereof, shall be distributed (for the period after the Amendment Effective Date only; all amounts payable with respect to the period from July 1, 2003 through the Amendment Effective Date to be retained by the Agent) among the Lenders as follows: (A) to the Issuing Lender, an amount equal to .30% per annum of the Issuing Lender's Pro Rata Share of the maximum face amount of such Letter of Credit, and (B) to the other Lenders, an amount equal to .30% per annum of such Lender's Pro Rata Share of the maximum face amount of such Letter of Credit

(iii) a Five-Year Letter of Credit issuance fee payable quarterly in arrears (and calculated based upon a 360-day and actual days elapsed) on the last Business Day of each March, June, September and December with respect to each Five-Year Letter of Credit in an amount equal to .65% per annum of the maximum face amount of such Five-Year Letter of Credit outstanding during such quarter, which Letter of Credit issuance fee shall be payable to the Agent for the account of the Issuing Lender and the other Lenders and, notwithstanding Section 2.3(a) hereof, shall be distributed (for the period following the Amendment Effective Date; all amounts payable with respect to the period from July 1, 2003 through the Amendment Effective Date to be retained by the Agent) among the Lenders as follows: (A) to the Issuing Lender, an amount equal to .65% per annum of the Issuing Lender's Pro Rata Share of the maximum face amount of such Letter of Credit and an amount equal to .10% per annum of the other Lenders' Pro Rata Shares of the maximum face amount of such Letter of Credit, and (B) to the other Lenders, an amount equal to .55% per annum of such Lender's Pro Rata Share of the maximum face amount of such Letter of Credit;

(iv) if the entire amount of any Reimbursement Obligation or any Letter of Credit issuance fee is not paid in full within ten (10) days after the same is due, a late fee equal to five percent (5%) of the required payment to be paid to the Agent for the account of the Issuing Lender and, subject to Section 2.3(a), the other Lenders; and

(v) all other charges, costs and fees customarily imposed by the Issuing Lender in connection with the issuance of letters of credit, which charges, costs and fees shall be paid to the Agent for the account of the Issuing Lender.

(b) Reinsurance agrees to pay the following fees:

(i) a Letter of Credit unused fee to be paid to the Agent for the account of the Issuing Lender and, subject to Section 2.3(a), the other Lenders, payable quarterly in arrears (and calculated based upon a 360-day year and actual days elapsed) on the last Business Day of each March, June, September and December, commencing on September 30, 2003 equal to .15% per annum of an amount equal to $250,000,000 minus the total Letter of Credit Obligations from time to time outstanding, provided , that for purposes of the Letter of Credit unused fee payable on September 30, 2003, such fee shall, for the period from the period from July 1, 2003 through the Amendment Effective Date, be equal to .15% per annum of an amount equal to $200,000,000 minus the total Letter of Credit Obligations from time to time outstanding, and for the period from the Amendment Effective Date through September 30, 2003, be equal to .15% per annum

of an amount equal to $250,000,000 minus the total Letter of Credit Obligations from time to time outstanding; and

(ii) a Letter of Credit upfront fee to be paid to the Agent for the account of the Issuing Lender and, subject to Section 2.3(a), the other Lenders, prior to or on the Amendment Effective Date equal to .075% of the Facility.

Section 2.8 Payments and Computations.

(a) All payments to be made by or on behalf of an Obligor under this Agreement shall be made to the Agent, for the account of the Issuing Lender and, subject to Section 2.3(a), the other Lenders, not later than 3:00 p.m. Connecticut time, on the date when due, in United States Dollars, in immediately available funds by federal funds wire to the Agent at:

ABA No.		011900571
For Credit to Account No.		151035110055 Fleet Bank Connecticut Commercial Loan Services Bank/Obligor #: 20 / 0000274563 Reference: Arch Capital Group Ltd.

or to such other address or account, or to the attention of such other Person as the Agent shall notify the applicable Obligor.

All payments by the Obligors under this Agreement shall be made without setoff or counterclaim and free and clear of, and without deduction for, any taxes (other than any taxes imposed on or measured by the gross income or profits of any Lender), levies, imposts, duties, charges, fees, deductions, withholdings, compulsory loans, restrictions or conditions of any nature now or hereafter imposed or levied by any country or any political subdivision thereof or taxing or other authority therein unless the Obligors are compelled by law to make such deduction or withholding. If any such obligation is imposed upon any Obligor with respect to any amount payable by it hereunder, it will pay to Agent, on the date on which such amount becomes due and payable hereunder and in United States Dollars, such additional amount as shall be necessary to enable each Lender to receive the same net amount which it would have received on such due date had no such obligation been imposed upon such Obligor. If, at any time, any Lender, or any permitted assignee of such Lender hereunder (an "Assignee"), is organized under the laws of any jurisdiction other than the United States or any state or other political subdivision thereof, such Lender or the Assignee shall deliver to the Obligors, through the Agent, on the date it becomes a party to this Agreement, and at such other times as may be necessary in the determination of the Obligors in their reasonable discretion, such certificates, documents or other evidence, properly completed and duly executed by such Lender or the Assignee (including, without limitation, Internal Revenue Service Form W-8BEN or W-8ECI, as appropriate, or any successor form prescribed by the Internal Revenue Service) to establish that such Lender or the Assignee is not subject to deduction or withholding of United States Federal Income Tax under Section 1441 or 1442 of the Internal Revenue Code or otherwise (or under

any comparable provisions of any successor statute) with respect to any payments to such Lender or the Assignee of principal, interest, fees or other amounts payable hereunder. The Obligors shall not be required to pay any additional amount to such Lender or any Assignee under this Section 2.8(a) if such Lender or such Assignee shall have failed to satisfy the requirements of the immediately preceding sentence; provided that if any Lender or any Assignee shall have satisfied such requirements on the date it became a party to this Agreement, nothing in this Section 2.8(a) shall relieve the Obligors of their obligation to pay any additional amounts pursuant to this Section 2.8(a) in the event that, as a result of any change in applicable law, such Lender or such Assignee is no longer properly entitled to deliver certificates, documents or other evidence at a subsequent date establishing the fact that such Lender or the Assignee is not subject to withholding as described in the immediately preceding sentence.

(b) The Agent shall disburse to the Issuing Lender and, subject to Section 2.3(a), the other Lenders each such payment received by the Agent therefor promptly upon receipt in like funds as received. If such payment is not made available by the Agent to any Lender within one (1) Business Day of the Agent's receipt of payment from the applicable Obligor, such Lender shall be entitled to recover such amount from the Agent with interest thereon at a rate per annum equal to the Federal Funds Rate.

(c) All payments made by or on behalf of an Obligor hereunder shall be applied first to the payment of all fees, expenses and other amounts due to the Lenders (excluding principal and interest) by such Obligor, then to accrued interest with respect to the Reimbursement Obligations of such Obligor, and the balance on account of outstanding principal with respect to the Reimbursement Obligations of such Obligor; provided, however, that upon the occurrence and during the continuation of an Event of Default, payments will be applied to the obligations of such Obligor to the Lenders as the Agent determines in its sole discretion (but not to the obligations of any other Obligor).

(d) All payments which shall be due hereunder on a day that is not a Business Day shall be extended to the next succeeding Business Day, and interest shall accrue during such extension.

(e) Computations of interest hereunder and computations of fees stated to be on an annual basis shall be made on the basis of a year of 360 days for the actual number of days elapsed (including the first day but excluding the last day).

Section 2.9 Failure to Pay the Agent.

The Agent may assume that each Obligor has made such payment in full to the Agent on the due date therefor and the Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent an Obligor shall not have so made such payment in full to the Agent, such Lender shall repay to the Agent forthwith upon demand such amount distributed to such Lender, together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Agent, at the Federal Funds

Rate. A certificate of the Agent submitted to any Lender with respect to any amount owing by such Lender under this Section 2.9 shall be conclusive in the absence of demonstrable error.

Section 2.10 Collateral Security.

All of the obligations of each Obligor to the Agent, the Issuing Lender and the other Lenders under this Agreement and the other Fundamental Documents shall be secured by a security interest and pledge granted by such Obligor, as security for such Obligor's obligations under this Agreement and the Letters of Credit issued at the request of such Obligor, in favor of the Agent, for the benefit of the Agent and the ratable benefit of the Lenders, in the securities and other collateral described in the applicable Security Agreement (together with all property or interests therein and all income therefrom and proceeds thereof, collectively, the "Collateral").

ARTICLE III

CONDITIONS OF ISSUANCE OF LETTERS OF CREDIT

Section 3.1 Conditions Precedent to Closing and Issuance of Initial Letters of Credit.

The obligations of the Issuing Lender (in its sole and absolute discretion) to issue any Letter of Credit under this Agreement on or after the Amendment Effective Date are subject to the satisfaction, prior to or concurrently with the issuance of any such Letter of Credit, of the following conditions precedent:

(a) Fundamental Documents . Each of the Obligors shall have executed and delivered to the Agent, with original executed copies for each Lender, each Fundamental Document required hereunder, which shall be in full force and effect.

(b) Proof of Corporate Action . The Agent shall have received, with original executed copies for each Lender, a certificate of the Secretary or an Assistant Secretary, or the equivalent thereof, of each Obligor, dated the date hereof, setting forth resolutions of the Board of Directors, or the equivalent thereof, of such Obligor approving the transactions contemplated by this Agreement and the other Fundamental Documents and authorizing the execution, delivery and performance by such Person of this Agreement and the other Fundamental Documents to which such Person is a party, which certificates shall state that such resolutions are in full force and effect without amendment.

(c) Incumbency Certificates . The Agent shall have received, with original executed copies for each Lender, a certificate of the Secretary or Assistant Secretary, or the equivalent thereof, of each Obligor, dated the date hereof, setting forth the names and containing a specimen signature of each officer and director of such Person authorized to sign this Agreement and the other Fundamental Documents to which such Person is a party and to give notices and to take other action on behalf of such Obligor hereunder and in relation to the Collateral.

(d) Bermuda Requirements . The Agent shall have received a certificate of compliance issued by the Bermuda Regulatory Authority (Registrar of Companies and the

Bermuda Monetary Authority) for each of the Parent, Alternative and Reinsurance, in form and substance satisfactory to the Agent.

(e) Legal Opinions . The Agent shall have received signed legal opinions of counsel for each Obligor, with original executed copies for each Lender, each in form and substance satisfactory to the Agent, which opinions shall be addressed to and allow reliance thereon by the Agent and each of the Lenders and their respective successors and permitted assigns.

(f) Proceedings and Documents . All corporate and other proceedings and all other matters in connection with the transactions contemplated by this Agreement (including, without limitation, all regulatory and third party approvals), the other Fundamental Documents and all other documents incidental hereto and thereto, including all opinions of counsel, shall be reasonably satisfactory in form and substance to the Agent.

Section 3.2 Additional Conditions Precedent to the Issuance of Letters of Credit.

The obligations of the Issuing Lender to issue any Letter of Credit under this Agreement on or after the Amendment Effective Date (including pursuant to Section 2.1(a)) are subject to the further conditions precedent that, both immediately prior to the issuance of such Letter of Credit and also after giving effect thereto:

(a) no Default shall have occurred and be continuing;

(b) the representations and warranties made by each Obligor in this Agreement and each of the Fundamental Documents shall be true and complete on and as of the date of the issuance of such Letter of Credit with the same force and effect as if made on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date);

(c) there has been no material adverse change in the financial condition, operations, properties, business or prospects of the Parent or any Obligor since the date of this Agreement;

(d) the Issuing Lender and the Agent shall have received a request for a Letter of Credit as provided in Section 2.1(b);

(e) the Issuing Lender and the Agent shall have received evidence satisfactory to it (i) that the Adjusted Collateral Value of the Obligor requesting the issuance of the Letter of Credit is not less than the sum of all amounts then outstanding with respect to Letter of Credit Obligations and Reimbursement Obligations of such Obligor, taking into account the amount of the requested Letter of Credit, (ii) that each of the Investments utilized in the calculation of such Obligor's Adjusted Collateral Value has been deposited into the Custodial Account maintained by such Obligor, and (iii) that the aggregate face amount of all Letters of Credit issued under this Agreement (taking into account the requested Letter of Credit) does not exceed $250,000,000 (United States Dollars);

(f) the Net Worth of the Parent shall be no less than $750,000,000; and

(g) with respect to any Letter of Credit requested by Arch Insurance, such Letter of Credit shall be issued solely for purposes of reinsurance and in connection with securing real estate leases for Arch Insurance.

Each request for a Letter of Credit by an Obligor hereunder shall constitute a certification by the Obligor to the effect set forth in the preceding sentence (both as of the date of such notice and, unless the Obligor otherwise notifies the Lender prior to the date of such Letter of Credit issuance, as of the date of such issuance).

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

In order to induce the Agent and the Lenders to enter into this Agreement and the Issuing Lender to issue the Letters of Credit, each Obligor for itself hereby represents and warrants that:

Section 4.1 Corporate Existence and Power.

Such Obligor (a) is a company or corporation duly organized, validly existing without limitation of its corporate existence and in good standing under the laws of its jurisdiction of organization and (b) has adequate power and authority and legal right to own or hold under lease the properties it purports to own or to hold under lease and to carry on the business in which it is engaged or presently proposes to engage. Such Obligor has adequate power and authority to enter into this Agreement and each of the other Fundamental Documents to which it is a party, to borrow hereunder, to create the Collateral for the Reimbursement Obligations contemplated by this Agreement and the Security Documents and to perform its obligations under this Agreement and each of the other Fundamental Documents to which it is or is to become a party as contemplated by this Agreement.

Section 4.2 Authority.

The execution and delivery by such Obligor of this Agreement and each other Fundamental Document to which it is or is to become a party as contemplated hereby, the obtaining of Letters of Credit hereunder, the pledging of the Collateral for the Reimbursement Obligations contemplated by this Agreement and the Security Documents and the performance by such Obligor of its obligations in respect of this Agreement and the other Fundamental Documents in accordance with their respective terms, have been duly authorized by all necessary corporate action on the part of such Obligor and do not and will not (a) contravene any provision of the Constituent Documents of such Obligor, (b) conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under or, except as contemplated by this Agreement, result in the creation or imposition of any Lien pursuant to the terms of any, mortgage, indenture, deed of trust, security agreement, pledge agreement, charge or other instrument to which such Obligor or any of its respective property is bound, (c) violate any law, governmental rule, regulation, order or decree of any court or administrative agency or governmental officer applicable to and binding upon such Obligor, (d) require any waiver, consent or other action by any governmental or regulatory authority or by any trustee or holder

of any Indebtedness or obligations of such Obligor or (e) require the approval of the shareholders of such Obligor.

Section 4.3 Binding Effect of Agreement and Other Fundamental Documents.

(a) This Agreement has been duly executed and delivered by such Obligor and the agreements contained herein constitute, and the agreements contained in each other Fundamental Document to which such Obligor is or is to become a party will, when each such other Fundamental Document is executed and delivered, constitute valid and legally binding obligations for such Obligor enforceable in accordance with their respective terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium, or other similar laws affecting the enforcement of creditors' rights generally, and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

(b) Each Security Document executed and delivered on or after the date hereof will effectively create the Liens purported to be created thereby and such liens will be first-priority liens on the Collateral covered thereby, subject to no other liens (except Liens in favor of the Custodian).

Section 4.4 Financial Information.

The Parent and such Obligor have heretofore furnished to the Agent and each Lender accurate and complete financial data and other information based on its operations in previous years, and said financial data furnished to the Agent and each Lender is accurate and complete and fairly presents the financial position and the results of operations for the period indicated therein.

Section 4.5 Material Adverse Change; No Default.

There has been no material adverse change in the condition, financial or otherwise, of the Parent or such Obligor since the date of the most recent financial statement and no Default or Event of Default exists with respect to such Obligor.

Section 4.6 Litigation.

There are no legal or arbitral proceedings, or any proceedings by or before any governmental or regulatory authority or agency, now pending or (to the knowledge of such Obligor) threatened against the Parent or such Obligor that are reasonably likely (either individually or in the aggregate) to have a material adverse effect on the condition, financial or otherwise, of the Parent or such Obligor.

Section 4.7 Compliance with Laws and Agreements.

Such Obligor is in compliance with laws, regulations and orders of any governmental agency or authority applicable to it or its Properties and all indentures, agreements and other instruments binding upon it or its Property, except where the failure to do so, individually or in

the aggregate, could not reasonably be expected to have a material adverse effect on its condition, financial or otherwise.

ARTICLE V

COVENANTS

Section 5.1 Affirmative Covenants.

Each Obligor for itself covenants and agrees that so long as any Letter of Credit is outstanding:

(a) Maintenance of Corporate Existence . Such Obligor shall maintain its corporate existence, rights and franchises.

(b) Reporting Requirements . Such Obligor shall furnish to the Agent and each Lender:

(i) Annual GAAP Financial Statements . Within one hundred twenty (120) days following the end of the Parent's and such Obligor's fiscal year (or, if a registered company, such earlier date as the Parent's and such Obligor's Form 10-K is filed with the Securities and Exchange Commission) copies of:

(x) the consolidated and consolidating balance sheet of the Parent as at the close of such fiscal year, and

(y) the consolidated and consolidating statements of income, changes in surplus and cash flows of the Parent for such fiscal year,

in each case setting forth in comparative form the figures for the preceding fiscal year and prepared in accordance with GAAP, all in reasonable detail and accompanied by an opinion thereon of PriceWaterhouseCoopers or other firm of independent public accountants of recognized national standing selected by the Parent and reasonably acceptable to the Majority Lenders, to the effect that the financial statements have been prepared in accordance with GAAP (except for changes in application in which such accountants concur) and present fairly in all material respects in accordance with GAAP the financial condition of the Parent as of the end of such fiscal year and the results of operations of the Parent for the fiscal year then ended and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as were considered necessary under the circumstances.

(ii) Quarterly GAAP Financial Statements . As soon as available, and in any event within sixty (60) days after the end of each quarterly fiscal period of the Parent and each Obligor (other than the fourth fiscal quarter of any fiscal year), copies of:

(x) the balance sheet of the Parent and each Obligor as at the end of such fiscal quarter, and

(y) the statements of income, changes in surplus and cash flows of the Parent and each Obligor for such fiscal quarter and the portion of such fiscal year ended with such fiscal quarter,

in each case setting forth in comparative form the figures for the preceding fiscal year and prepared in accordance with GAAP, all in reasonable detail and certified as presenting fairly in accordance with GAAP the financial condition of the Parent and each Obligor as of the end of such period and the results of operations for such period by a senior officer of the Parent or the Obligor, as applicable, subject only to normal year-end accruals and audit adjustments and the absence of footnotes.

(iii) Annual/Quarterly Reports . Concurrently with the delivery of the financial statements required pursuant to subsections (i), (ii), (vi) and (vii) of this Section, copies of all reports required to be filed with any Applicable Insurance Regulatory Authority in connection with the filing of such financial statements.

(iv) Management Letters . Promptly upon receipt thereof, copies of any reports or management letters relating to the internal financial controls and procedures delivered to the Parent and such Obligor by any independent certified public accountant in connection with an examination of the financial statements of the Parent or such Obligor, as applicable.

(v) Additional Information . Such additional information as the Agent or any Lender, through the Agent, may reasonably request concerning the Parent or such Obligor and for that purpose all pertinent books and other documents relating to its business, affairs and Properties, including Investments as shall from time to time be designated by the Agent or any Lender.

(vi) Annual SAP Financial Statements . As soon as available, and in any event within fifteen (15) days following the filing of such with the Applicable Insurance Regulatory Authority, copies of the (if required to be filed with a regulatory authority) SAP Financial Statements for such Obligor, in each case setting forth in comparative form the figures for the preceding fiscal year and prepared in accordance with SAP, all in reasonable detail and certified as presenting fairly in accordance with SAP the financial condition of such Obligor by a senior officer of such Obligor. Such Annual SAP Financial Statements shall be accompanied by a summary of the applicable fiscal year prepared by the management of the Obligor.

(vii) Quarterly SAP Statements . As soon as available, and in any event within sixty (60) days after the end of each quarterly fiscal period, copies of the unaudited SAP Financial Statements for such quarterly period of such Obligor setting forth in comparative form the figures for the preceding fiscal year and prepared in accordance

with SAP, all in reasonable detail and certified as presenting fairly in accordance with SAP the financial condition of such Obligor, as applicable, as of the end of such period and results of operations for such period by a senior officer of such Obligor, as applicable, subject to normal year-end accruals and audit adjustments.

(c) Maintenance of Adjusted Collateral Value . Such Obligor shall at all times maintain Collateral in the Custodial Account maintained in its name in an amount such that the Adjusted Collateral Value is not less than the sum of all amounts then outstanding with respect to the sum of the Letter of Credit Obligations and Reimbursement Obligations of such Obligor. Each Obligor agrees that if the Adjusted Collateral Value of the Collateral in the applicable Custodial Account is less than the sum of the Letter of Credit Obligations and the Reimbursement Obligations of such Obligor, the Agent may, and upon instruction from the Majority Lenders shall, require such Obligor to pay to the Custodian the amount of any such deficiency, which amount shall be payable by no later than 3:00 p.m. (Connecticut time) (i) on the date of notice by the Agent, if such notice is received before 12:00 p.m. (Connecticut time) or (ii) on the Business Day immediately following the date of notice by the Agent, if such notice is received after 12:00 p.m. (Connecticut time), and which payment shall be deposited by the Custodian into the applicable Custodial Account in the form of cash or Investments. At any time, other than after the occurrence and during the continuation of a Default or an Event of Default, an Obligor may substitute Collateral to the extent such substitution arises from normal trade activities within the Custodial Account in accordance with the provisions of Section 1 of the Security Agreement between the Obligor and the Agent.

ARTICLE VI

EVENTS OF DEFAULT AND REMEDIES

Section 6.1 Events of Default Defined.

With respect to each Obligor, each of the following is an "Event of Default:"

(a) failure by such Obligor to pay any amount payable by it hereunder on the date due;

(b) if the validity or enforceability of any Security Document to which such Obligor is a party shall be contested by any Person;

(c) if any representation or warranty made by or on behalf of such Obligor in this Agreement, in any other Fundamental Document or in any certificate, report or financial or other statement furnished to the Agent or any Lender at any time under or in connection with this Agreement, any other Fundamental Document or any other such document or agreement shall have been untrue in any material respect when made or deemed to have been made;

(d) default by such Obligor in the observance or performance of its covenants set forth in (i) Article V; or (ii) default by such Obligor in the observance or performance of its obligation to maintain the value of the Custodial Account maintained in its name in accordance with Section 1 of the Security Agreement between it and the Agent;

(e) default by such Obligor in the observance or performance of any other covenant or agreement contained in this Agreement or any other Fundamental Document and the continuance thereof unremedied for 10 days after receipt by such Obligor of written notice of such default from the Agent;

(f) an order shall be made by a competent court or a resolution shall be passed for the winding up or dissolution or rehabilitation of the Parent or such Obligor save for the purposes of amalgamation, merger, consolidation, reorganization or other similar arrangement on terms approved by the Majority Lenders (not involving the insolvency of the Parent or such Obligor) and save that if any such order or resolution is sought in an involuntary proceeding against any such Person, such Person shall have thirty (30) days from the commencement of such proceeding to obtain an order staying, vacating or dismissing such proceedings, or a petition shall be presented to, or an order shall be made by a competent court for the appointment of, an administrator of the Parent or such Obligor and such petition or order shall not have been stayed, vacated or dismissed within thirty (30) days after the presentation of such petition or the making of such order;

(g) the Parent or such Obligor shall cease to carry on the whole or substantially the whole of its business, save for the purposes of amalgamation, merger, consolidation, reorganization or other similar arrangement (not involving or arising out of the insolvency of the Parent or such Obligor) which is permitted hereunder, or the Parent or such Obligor shall suspend payment of its debts generally or shall be unable to, or shall admit inability to, pay its debts as they fall due, or shall be adjudicated or found bankrupt or insolvent by any competent court in a voluntary or involuntary bankruptcy or insolvency proceeding and, in the case of an involuntary proceeding, such adjudication or finding is not stayed, vacated or dismissed for thirty (30) days, or shall enter into any composition or other similar arrangement with its creditors generally;

(h) a receiver, administrator, liquidator or other similar official shall be appointed in relation to the Parent or such Obligor or in relation to the whole or a substantial part of its assets or to the Collateral or a distress, execution or other process shall be levied or enforced upon or out against, or any encumbrancer shall take possession of, the whole or a substantial part of its assets or the Collateral and in any of the foregoing cases, such action or person shall not be discharged, dismissed, vacated, stayed or bonded within thirty (30) days;

(i) any seizure, vesting or intervention by or under authority of a government occurs, by which the Parent's or such Obligor's management is displaced or its authority in the conduct of its business is curtailed;

(j) default by the Parent or such Obligor in (i) any payment of principal of or interest of any Indebtedness beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness was created; or (ii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or

holders) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity, provided that the aggregate principal amount of all such Indebtedness which would then become due and payable would equal or exceed, in the case of the Parent or such Obligor, $15,000,000; or

(k) One or more judgments or decrees shall be entered against the Parent or such Obligor involving in the aggregate a liability (to the extent not paid or covered by insurance) of, in the case of the Parent or such Obligor, $15,000,000 or more, and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 60 days after the entry thereof.

(l) The Net Worth of the Parent shall be less than $750,000,000 as of the end of any fiscal quarter.

Section 6.2 Remedies.

(a) Without limiting any other rights or remedies of the Agent or the Lenders provided for elsewhere in this Agreement or any other Fundamental Document, or by applicable law, or in equity, or otherwise, (i) if any Event of Default shall occur and be continuing with respect to any Obligor, the Agent may, and if requested by the Majority Lenders shall, by notice to such Obligor, declare all amounts owing under this Agreement from such Obligor and any Letters of Credit (whether or not such Letter of Credit Obligations be contingent or unmatured) issued at the request of such Obligor to be forthwith due and payable, whereupon all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by such Obligor, and (ii) if any Event of Default shall occur and be continuing with respect to the Parent, the Agent may, and if requested by the Majority Lenders shall, by notice to each Obligor, declare all amounts owing under this Agreement from each Obligor and any Letters of Credit (whether or not such Letter of Credit Obligations be contingent or unmatured) issued at the request of such Obligor to be forthwith due and payable, whereupon all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by each Obligor. The Agent may, and if requested by the Majority Lenders shall, immediately take any and all remedies with respect to the Collateral permitted by the Security Documents.

(b) Upon declaration as provided for above, the defaulting Obligor shall, as specified in written notice by the Agent, either (i) immediately deliver to the Agent, any amounts required to be paid in accordance with Section 5.1(c) hereof (the "Letter of Credit Amount"), or (ii) with the consent of the Beneficiary or Beneficiaries thereof, cause any Letters of Credit to be canceled forthwith in a manner satisfactory to the Majority Lenders. In addition to providing the Letter of Credit Amount, the defaulting Obligor shall provide the Agent with any documentation as the Agent may from time to time request to perfect its rights in the Letter of Credit Amount, including, without limitation, pledge agreements and financing statements in form and substance satisfactory to the Agent. The Agent shall hold the Letter of Credit Amount in its own name, for the benefit of the Issuing Lender and, subject to Section 2.3(a), the other Lenders, for the exclusive purpose of applying such Letter of Credit Amount toward the immediate payment of

amounts which are thereafter drawn under any Letter of Credit, and, to the extent of such payment, the Reimbursement Obligations shall be deemed to be satisfied. Upon the expiry date of all Letters of Credit, any Letter of Credit Amount remaining after satisfaction of all Reimbursement Obligations shall be remitted to the order of the applicable Obligor. Each Obligor shall remain liable for the relevant amount of any deficiency in respect of its Letter of Credit Obligations and Reimbursement Obligations.

(c) Upon the occurrence and during the continuation of any Default or Event of Default under this Agreement, no Letter of Credit shall be issued, renewed or extended under this Agreement without the unanimous consent of the Lenders.

ARTICLE VII

THE AGENT.

Section 7.1 Authorization and Action.

(a) Each Lender hereby irrevocably appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement and the other Fundamental Documents as are delegated to the Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement and the other Fundamental Documents, the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Lenders, and such instructions shall be binding upon all Lenders; provided , however , that the Agent shall not be required to take any action which exposes the Agent to liability or which is contrary to this Agreement, the other Fundamental Documents or applicable law.

(b) The Lenders agree to cooperate in good faith and in a commercially reasonable manner in connection with the exercise by the Agent of the rights granted to the Lenders by law, this Agreement and the other Fundamental Documents, including, but not limited to, providing necessary information to the Agent with respect to the Letter of Credit Obligations and Reimbursement Obligations and preparing and executing necessary affidavits, certificates, notices, instruments and documents. Subject to the authority of the Majority Lenders or other applicable number of Lenders as provided in this Agreement to direct the Agent in writing when such direction by the Lenders is required by this Agreement for such action, the Agent is hereby authorized to act for and on behalf of the Lenders in all day-to-day matters with respect to the exercise of rights described herein, such as the supervision of attorneys, accountants, appraisers or others in connection with litigation or other similar actions. To the extent the Agent from time to time receives material notices and documentation from the Obligors in its capacity as Agent, and the Agent becomes aware that such notices and documentation have not otherwise been delivered by the Obligors to the Lenders, the Agent shall use reasonable commercial efforts to deliver copies of all such notices and documentation to each of the Lenders within a reasonable time following the Agent's receipt thereof.

Section 7.2 Exculpatory Provisions; Agent's Reliance, Etc.

Neither the Agent, nor its directors, officers, agents, employees or Affiliates shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement and the other Fundamental Documents, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Agent (i) may consult with legal counsel (including counsel for the Obligors), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (ii) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations made in or in connection with this Agreement or the other Fundamental Documents; (iii) shall have no duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement and the other Fundamental Documents on the part of the Obligors, (iv) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement and the other Fundamental Documents or any other instrument or document furnished pursuant hereto or thereto; and (v) shall incur no liability under or in respect of this Agreement and the other Fundamental Documents by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram, cable, telex or telecopy) purported to be genuine and signed or sent by the proper party or parties. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement in accordance with a request of the Majority Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders.

Section 7.3 Notice of Default.

The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Agent has received notice from a Lender or an Obligor, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Agent receives such a notice, the Agent shall give prompt notice thereof to the Lenders. The Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Majority Lenders, provided that unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders; provided further , that the Agent shall not be required to take any action which exposes the Agent to liability or which is contrary to this Agreement, the other Fundamental Documents or applicable law.

Section 7.4 Fleet and Affiliates.

With respect to its Commitment, the Letters of Credit, the Letter of Credit Obligations and the Reimbursement Obligations owed to it in its capacity as Issuing Lender, Fleet shall have the same rights and powers with respect to this Agreement or the Letters of Credit as any other Lender and may exercise the same as though it were not the Agent; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include Fleet in its individual capacity. Fleet and its Affiliates may accept deposits from, lend money to, act as trustee under indentures

of, and generally engage in any kind of business with, the Obligors and their Affiliates and any of their respective Affiliates and any Person who may do business with or own securities of any Obligor or its Affiliates all as if Fleet were not the Agent, and without any duty to account therefor to the Lenders.

Section 7.5 Credit Decision.

Each Lender acknowledges that it has, independently and without reliance upon the Agent or any other Lender and based on such information as it deems necessary (the receipt of which such Lender acknowledges), made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Fundamental Documents.

Section 7.6 Indemnification.

Each Lender agrees to indemnify the Agent (to the extent not reimbursed by the Obligors and up to such Lender's Pro Rata Share of any such amounts) from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement and the other Fundamental Documents, or any action taken or omitted by the Agent under this Agreement and the other Fundamental Documents, provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse the Agent promptly upon demand for its Pro Rata Share of any out-of-pocket expenses (including reasonable counsel fees) incurred by the Agent in connection with the preparation, execution, administration, or enforcement of, or legal advice in respect of rights or responsibilities under, this Agreement and the other Fundamental Documents, to the extent that the Agent is not reimbursed for such expenses by the Obligors.

Section 7.7 Successor Agent.

The Agent may not resign as Agent under this Agreement without the prior written consent of the Obligors. Upon any such resignation, the Majority Lenders shall have the right to appoint a successor Agent hereunder with the approval of the Obligors, which shall not be unreasonably withheld. If no successor Agent shall have been so appointed by the Majority Lenders and shall have accepted such appointment within 30 days after the retiring Agent's resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent with the approval of the Obligors, which shall not be unreasonably withheld, which shall be a commercial bank organized under the laws of the United States of America or of any state thereof and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Agent under this Agreement by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers,

privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement arising from and after the date of resignation. After any retiring Agent's resignation as Agent under this Agreement, the provisions of this Article 7 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement.

Section 7.8 Application of this Article to the Obligors.

Notwithstanding anything to the contrary in this Article 7, the provisions of Sections 7.1, 7.2, 7.3, 7.5 and 7.6 shall be deemed to govern the rights and obligations as among the Lenders and the Agent only, and shall not be construed to affect any rights or obligations of the Obligors with respect to the Lenders and the Agent.

ARTICLE VIII

MISCELLANEOUS

Section 8.1 Amendments and Waivers.

No amendment or waiver of any provision of this Agreement or any other Fundamental Document nor consent to any departure by any Obligor therefrom, shall in any event be effective unless the same shall be in writing and signed by the Agent, the Obligors and the Majority Lenders and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. Notwithstanding the foregoing, the written consent of all of the Lenders shall be required for any amendment or waiver having the effect of (i) extending the Facility Termination Date, extending the time of payment of principal, interest or fees on any Reimbursement Obligations or reducing or forgiving the principal amount thereof (other than by repayment), decreasing the Interest Rate, increasing the amount of any Lender's Commitment over the amount then in effect, (ii) amending the definition of Adjusted Collateral Value, (iii) reducing the percentage specified in the definition of Majority Lenders, (iv) amending or waiving any provision of Sections 2.3(a), 3.1, 3.2, 5.1(c), 6.2(b) or 8.1, (v) releasing any Collateral under the Security Documents (other than as permitted under Section 1 of the Security Agreement), or (vi) consenting to the assignment or transfer by an Obligor of any of its rights and obligations under this Agreement or any other Fundamental Agreement. No failure on the part of the Agent or any Lender to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof or preclude any other or further exercise thereof or the exercise of any other right, nor shall any single or partial exercise of any right hereunder preclude any other further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.

Section 8.2 Assignment; Participations.

(a) With the written consent of the Issuing Lender and the Agent (which consent shall not be unreasonably withheld), each Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including, all or a portion of its Commitment and the amounts under the Reimbursement Obligations owing to it); provided,

however, that (i) each such assignment shall be of a constant, and not a varying, percentage of all of the assigning Lender's rights and obligations under this Agreement, (ii) the amount of the Commitment of the assigning Lender being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance) with respect to such assignment shall in no event be less than $5,000,000 and shall be an integral multiple of $500,000 (or in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, any lesser increment), and (iii) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance and recording in the Register (as defined in (c) below), an Assignment and Acceptance and a $3,500 non-refundable processing fee from the assigning Lender. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, (x) the assignee thereunder shall be a Lender party hereto and, to the extent that rights and obligations (including any portion of any Commitment) hereunder have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Lender hereunder and (y) the Lender assignor thereunder shall, to the extent that rights and obligations (including any portion of any Commitment) hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights (other than its rights to indemnification under Sections 2.6 and 8.5) and be released from its obligations under this Agreement arising after the date of assignment (and, in the case of an assignment covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto.)

(b) By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Obligors or the performance or observance by the Obligors of any of their obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the most recent financial statements referred to in Section 5.1(b) and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee appoints and authorizes the Agent to take such action as Agent on its behalf and to exercise such powers under this Agreement and the other Fundamental Documents as are delegated to the Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto; (vi) such assignee agrees that it will perform in accordance with the terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender; and (vii) such assignee represents that such assignment will not result in any Prohibited Transaction.

(c) The Agent shall maintain at its address set forth on the signature pages hereto a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Reimbursement Obligations owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Obligors, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Obligors or any Lender at any reasonable time and from time to time upon reasonable prior notice.

(d) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and its assignee, the Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit D , (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Obligors.

(e) Each Lender may sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement (including without limitation, all or a portion of its Commitment and the amounts under the Reimbursement Obligations owing to it); provided, however, that (i) such Lender's obligations under this Agreement (including without limitation, its Commitment hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Obligors, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement; provided , that no Lender shall transfer or grant any participation under which the participant shall have the right to approve any amendment to or waiver of this Agreement or any other Fundamental Document, except with respect to an extension of the Facility Termination Date or a reduction of the principal amount of or the rate of interest payable on the Reimbursement Obligations or any fees related thereto.

(f) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 8.2, disclose to the assignee or participant or proposed assignee or participant any information relating to the Obligors furnished to such Lender by or on behalf of the Obligors; provided that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree in writing to preserve the confidentiality of any confidential information relating to the Obligors received by it from such Lender. The Agent, and Lenders and the Obligors hereby agree that each of them (and each of their respective directors, employees, representatives or agents) may disclose to any and all persons without limitation of any kind, the tax treatment and tax structure (as those terms are defined by Treasury Regulation Section 1.6011-4) of the transactions under this Agreement, and all materials of any kind, including opinions or other tax analyses, that are provided to any of them related to such tax treatment and tax structure, excluding any disclosure of the identities of parties to this Agreement, any pricing information or any other term or detail not related to the tax treatment or tax structure of the transactions hereunder. Except as provided above, the Agent and the Lenders agree that from the date hereof, they will not and will not permit their respective Affiliates and their Affiliates' respective directors, officers, employees and agents, including

accountants, legal counsel and other advisors, without the prior written consent of the Obligor, to submit or disclose to or file with any Person, any confidential or non-pubic information relating to an Obligor, except to a regulatory body or agency having jurisdiction over the Agent or such Lender or where disclosure otherwise may be required by or pursuant to process of law.

(g) Nothing herein shall prohibit any Lender from pledging or assigning all or any portion of such Lender's rights under this Agreement and the other Fundamental Documents to a Federal Reserve Bank; provided , however , that no such pledge or assignment or enforcement thereof shall release such Lender from its obligations hereunder or under any other Fundamental Document.

Section 8.3 Addresses for Notices.

All notices and other communications provided for hereunder shall be in writing unless otherwise stated herein and shall be delivered by e-mail, fax, hand delivery, or recognized courier service that provides delivery within two Business Days:

if to Reinsurance, at

Wessex House
45 Reid Street
Hamilton HM 12
Bermuda
Attn: Chief Financial Officer
Telephone: (441) 278-9200
Facsimile: (441) 278-9230
E-mail: first name.last name@archreinsurance.bm

if to Arch Company, at

55 Madison Avenue
2nd Floor
P.O. Box 1988
Morristown, New Jersey 07962-1988
Attn: Chief Financial Officer
Telephone: (973) 898-9575
Facsimile: (973) 898-9570
E-mail: first name initial.last name@archreco.com

if to Arch Insurance, at

One Liberty Plaza
53rd Floor
New York, New York 10006
Attn: Chief Financial Officer
Telephone: (212) 651-6500

Facsimile: (212) 651-6499
E-mail: first name initial.last name@archinsurance.com

if to Alternative, at

Victoria Hall
11 Victoria Street
Hamilton
Bermuda
Attn: Chief Financial Officer
Telephone: (414) 297-9766
Facsimile: (441) 292-1563
E-mail:

if to the Agent or the Issuing Lender, at

777 Main Street
Hartford, CT 06115
Attn: Lawrence Davis
Telephone: (860) 952-7559
Facsimile: (860) 986-1264
E-mail: lawrence_m_davis@fleet.com

if to any other Lender, at the addresses set forth on Schedule 2 of this Agreement

or to such other address as such party may specify to the other party, and shall be effective when delivered at the address specified in or pursuant to this Section.

Section 8.4 Successors and Assigns. This Agreement is a continuing obligation of each Obligor and shall, until the date on which all amounts due and owing hereunder are paid in full (i) be binding upon each Obligor, its successors and assigns, and (ii) inure to the benefit of and be enforceable by the Lender and its successors and assigns, provided, that any assignment of this Agreement or any part hereof by any Obligor shall be void.

Section 8.5 Payment of Expenses and Taxes; Indemnities.

(a) (i) Reinsurance hereby agrees to pay or reimburse the Agent and the Lenders for all their out-of-pocket costs and expenses incurred in connection with the development, preparation and attention to the execution of the Fundamental Documents, and of documents embodying or relating to amendments, waivers or consents with respect to any of the foregoing, including the reasonable fees and out-of-pocket costs and expenses of counsel to the Agent and the Lenders, (ii) Reinsurance agrees to pay and to save the Agent and the Lenders from all registration, recording and filing fees and all liabilities with respect to, or resulting from, any delay by any Obligor in paying stamp and other Taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, any of the

Fundamental Documents or any amendment, waiver or consent with respect thereto or the consummation of any of the transactions contemplated thereby, (iii) each Obligor agrees to pay or reimburse the Agent and the Lenders for all their out-of-pocket costs and expenses incurred in connection with the preparation and attention to the execution and issuance of Letters of Credit issued at the request of such Obligor and (iv) each Obligor agrees to pay or reimburse the Agent and the Lenders for all out-of-pocket costs and expenses incurred by it in connection with the enforcement or preservation of any rights against such Obligor under or in respect of this Agreement and the other Fundamental Documents (including the fees and expenses of lawyers retained by the Agent and the Lenders, including the allocated costs of internal counsel, and remuneration paid to agents and experts not in the full-time employ of the Agent and the Lenders for services rendered on behalf of the Agent and the Lenders) on a full indemnity basis. All such amounts will be paid by Reinsurance or the Obligors, as applicable, on demand.

(b) Each Obligor agrees to indemnify the Agent and each Lender, and their directors, officers, employees, agents and Affiliates from, and hold each of them harmless against, any and all claims, damages, losses, liabilities, costs and expenses (including without limitation, reasonable fees and disbursements of counsel) arising as a consequence of (i) any failure by such Obligor to pay the Agent or any Lender, as required under this Agreement, punctually on the due date thereof, any amount payable by such Obligor to the Agent or any Lender or (ii) the acceleration, in accordance with the terms of this Agreement, of the time of payment of any of the Reimbursement Obligations of such Obligor, except to the extent caused by the Agent's or such Lender's negligence or willful misconduct or breach of this Agreement. Such losses, costs or expenses may include, without limitation, (i) any costs incurred by the Lender in carrying funds to cover any overdue principal, overdue interest, or any other overdue sums payable by the Obligor to such Lender or (ii) any losses incurred or sustained by any Lender in liquidating or reemploying funds acquired by such Lender from third parties.

(c) Each Obligor agrees to indemnify the Agent and the Lenders, and their directors, officers, employees, agents and Affiliates from, and hold each of them harmless against, any and all claims, damages, liabilities, losses, costs and expenses (including without limitation, reasonable fees and disbursements of counsel) arising out of or by reason of any investigation or litigation or other proceedings (including any threatened investigation or litigation or other proceedings) with respect to such Obligor relating to any transaction contemplated by this Agreement or any other Fundamental Document, any actions or omissions of such Obligor or any of such Obligor's directors, officers, employees or agents in connection with this Agreement or any other Fundamental Document, including without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation or litigation or other proceedings (but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified).

Section 8.6 Right of Set-Off. Each Obligor agrees that, in addition to (and without limitation of) any right of setoff, banker's lien or counterclaim the Agent and each of the Lenders may otherwise have, the Agent and each of the Lenders shall be entitled, at their option, to offset balances (general or special, time or demand, provisional or final, and regardless of whether such balances are then due to

such Obligor) held by any of them for the account of such Obligor at any of the Agent's or the Lenders' offices, in Dollars or in any other currency, against any amount payable by such Obligor under this Agreement or any Letter of Credit that is not paid when due, taking into account any applicable grace period, in which case it shall promptly notify such Obligors thereof, provided that the Agent's or any Lender's failure to give such notice shall not affect the validity thereof. In furtherance thereof, each Obligor hereby grants to the Agent, a continuing lien, security interest and right of setoff as security for all liabilities and obligations to the Agent and each of the Lenders, whether now existing or hereafter arising, upon and against all deposits, credits, collateral and property of such Obligor, now or hereafter in the possession, custody, safekeeping or control of the Agent or any entity under the control of FleetBoston Financial Corporation and its successors and assigns or in transit to any of them. At any time after the occurrence of an Event of Default, without demand or notice (any such notice being expressly waived by each Obligor), the Agent may setoff the same or any part thereof and apply the same to any liability or obligation of such Obligor even though unmatured and regardless of the adequacy of any other collateral securing such Obligor's obligations hereunder. ANY AND ALL RIGHTS TO REQUIRE THE AGENT TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES AN OBLIGOR'S OBLIGATIONS HEREUNDER, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF SUCH OBLIGOR, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED. At the option of the Agent, if there is a separate revolving line of credit, line of credit, or other credit facility existing between the Agent and such Obligor, the Agent is irrevocably authorized to satisfy such Obligor's reimbursement obligation to the Lenders, in whole or in part, by making an advance under such facility.

Section 8.7 Governing Law. This Agreement, and the rights and obligations of the parties hereunder, shall be governed by, and construed in accordance with the laws of the State of Connecticut without giving effect to the choice of law or conflicts of law principles thereof.

Section 8.8 Consent to Jurisdiction. Each Obligor hereby expressly submits to the non-exclusive jurisdiction of all federal and state courts sitting in the State of Connecticut, and agrees that any process or notice of motion or other application to any of said courts or a judge thereof may be served upon such Obligor within or without such court's jurisdiction by registered or certified mail, return receipt requested, or by personal service, at such Obligor's address (or at such other address as the Obligor shall specify by a prior notice in writing to the Agent), provided reasonable time for appearance is allowed. Each Obligor hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue to any suit, action or proceeding arising out or relating to this Agreement brought in any federal or state courts sitting in the State of Connecticut and hereby further irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Notwithstanding the foregoing, the Agent may sue any Obligor in any jurisdiction where such Obligor or any of its assets may be found and may serve legal process upon such Obligor in any other manner permitted by law.

Section 8.9 Waiver of Jury Trial. EACH OBLIGOR, THE AGENT AND EACH OF THE LENDERS MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER FUNDAMENTAL DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY, INCLUDING, WITHOUT LIMITATION, ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS OR ACTIONS OF THE AGENT OR ANY LENDER RELATING TO THE ADMINISTRATION OF THIS AGREEMENT OR ENFORCEMENT OF THE FUNDAMENTAL DOCUMENTS, AND AGREE THAT NO PARTY WILL SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. EXCEPT AS PROHIBITED BY LAW, EACH OBLIGOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. EACH OBLIGOR CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE AGENT OR ANY LENDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE AGENT OR SUCH LENDER WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE AGENT AND EACH LENDER TO ENTER INTO THIS AGREEMENT AND THE OTHER FUNDAMENTAL DOCUMENTS.

Section 8.10 Interest. All agreements between the Agent, each of the Lenders and the Obligors are hereby expressly limited so that in no contingency or event whatsoever shall the amount paid or agreed to be paid to the Lenders for the use or the forbearance of the indebtedness evidenced hereby exceed the maximum permissible under applicable law. As used herein, the term "applicable law" shall mean the law in effect as of the date hereof; provided, however, that in the event there is a change in the law which results in a higher permissible rate of interest, then this Agreement shall be governed by such new law as of its effective date. In this regard, it is expressly agreed that it is the intent of the Agent, each of the Lenders and the Obligors in the execution, delivery and acceptance of this Agreement to contract in strict compliance with the laws of the State of Connecticut from time to time in effect. If, under or from any circumstances whatsoever, fulfillment of any provision hereof or of any of the agreements executed herewith at the time of performance of such provision shall be due, shall involve transcending the limit of such validity prescribed by applicable law, then the obligation to be fulfilled shall automatically be reduced to the limits of such validity, and if under or from circumstances whatsoever the Lenders should ever receive as interest an amount which would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of the principal balance evidenced hereby and not to the payment of interest. This provision shall control every other provision of all agreements between the Obligors, the Agent and the Lenders.

Section 8.11 Table of Contents and Captions. The Table of Contents hereof and captions herein are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

Section 8.12 Integration. This Agreement is intended by the parties as the final, complete and exclusive statement of the transactions evidenced by this Letter of Credit and Reimbursement Agreement. All prior or contemporaneous promises, agreements and understandings, whether oral or written, are deemed to be superceded by this Agreement, and no party is relying on any promise, agreement or understanding not set forth in this Agreement.

Section 8.13 Counterparts. This Agreement may be executed in multiple counterparts each of which shall be an original and all of which when taken together shall constitute but one and the same Agreement.

[Remainder of the Page Intentionally Left Blank]

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their respective officers, as an instrument under seal, as of the date first above written.

		ARCH REINSURANCE LTD.
		By:	/s/ DWIGHT EVANS Name: Dwight Evans Title: President
		By:	Name: Title:
		ARCH REINSURANCE COMPANY
		By:	/s/ JOHN F. RATHGEBER Name: John F. Rathgeber Title: Managing Director & Chief Operating Officer
		ARCH INSURANCE COMPANY
		By:	/s/ FRED S. EICHLER Name: Fred S. Eichler Title: Senior Vice President & Chief Financial Officer
		ALTERNATIVE RE LIMITED
		By:	/s/ DAWNA FERGUSON Name: Dawna Ferguson Title: Secretary

		FLEET NATIONAL BANK, as Agent and Issuing Lender
		By:	/s/ LAWRENCE DAVIS Name: Lawrence Davis Title: Portfolio Manager
		COMERICA BANK, as Lender
		By:	/s/ MARTIN G. ELLIS Name: Martin G. Ellis Title: Vice President
		BARCLAYS BANK, as Lender
		By:	/s/ JEREMY RITCHIE Name: Jeremy Ritchie Title: Relationship Director's Assistant

Schedule 1

Existing Letters of Credits

Letters of Credit for the account of Arch Insurance Company

LOC Number	Issue Date	Outstanding Balance		Outstanding Balance in USD		Expiration Date
00000001372075	12/24/02	$	943,600.00 USD	$	943,600.00 USD	12/16/03
00000001411829	07/07/03		650,000.00 CAD		484,705.00 USD	06/30/04
00000001411818	06/30/03		5,000,000.00 USD		5,000,000.00 USD	06/30/04
00000001411819	07/03/03		5,000,000.00 USD		5,000,000.00 USD	06/30/04
TOTAL				$	11,428,305.00 USD

Letters of Credit for the account of Arch Reinsurance Company

LOC Number	Issue Date	Outstanding Balance		Outstanding Balance in USD		Expiration Date
00000001372385	12/31/02	$	3,747.75 USD	$	3,747.75 USD	12/31/03
00000001372386	12/31/02		209,640.50 USD		209,640.50 USD	12/31/03
00000001372387	12/31/02		521,937.80 USD		521,937.80 USD	12/31/03
00000001372388	12/31/02		1,500,000.00 USD		1,500,000.00 USD	12/31/03
00000001372389	12/31/02		1,325,245.00 USD		1,325,245.00 USD	12/31/03
00000001415461	07/01/03		6,500,000.00 USD		6,500,000.00 USD	06/30/04
TOTAL				$	10,060,571.05 USD

Letters of Credit for the account of Arch Reinsurance Ltd.

LOC Number	Issue Date	Outstanding Balance		Outstanding Balance in USD			Expiration Date
00000001325891	05/20/02	$	24,092,000.00 USD	$	24,092,000.00 USD	*	12/31/07
00000001331649	01/01/02		7,750,000.00 USD		7,750,000.00 USD	*	12/31/07
00000001338703	06/28/02		586,645.00 USD		586,645.00 USD		06/30/04
00000001360501	01/01/03		25,800,000.00 USD		25,800,000.00 USD		12/31/07
00000001360502	12/31/02		132,000.00 USD		132,000.00 USD		12/31/03
00000001360508	12/31/02		593,639.11 USD		593,639.11 USD		12/31/03
00000001360509	01/01/03		19,351,195.00 GBP		32,343,587.32 USD	*	12/31/07
00000001365884	12/04/02		10,000,000.00 USD		10,000,000.00 USD	*	12/31/06
00000001372055	12/24/02		543,113.54 USD		543,113.54 USD		12/31/03
00000001372059	12/24/02		954,442.56 USD		954,442.56 USD		12/31/03
00000001372060	12/24/02		84,934.15 USD		84,934.15 USD		12/31/03
00000001372065	12/24/02		226,074.16 CAD		168,583.50 USD		12/31/03
00000001372079	12/24/02		6,297,956.00 USD		6,297,956.00 USD		12/31/03
00000001372080	12/24/02		159,380.00 USD		159,380.00 USD		12/31/03
00000001372081	12/24/02		1,198,127.00 USD		1,198,127.00 USD		12/31/03
00000001372082	12/24/02		761,033.00 USD		761,033.00 USD		12/31/03
00000001372083	12/24/02		75,543.00 CAD		56,332.42 USD		12/31/03
00000001372084	12/24/02		82,440.72 USD		82,440.72 USD		12/31/03
00000001372085	12/24/02		415,035.00 USD		415,035.00 USD		12/31/03

00000001372086	12/24/02	181,750.44 USD	181,750.44 USD	12/31/03
00000001372088	12/24/02	1,191,273.30 USD	1,191,273.30 USD	12/31/03
00000001372089	12/24/02	207,891.00 USD	207,891.00 USD	12/31/03
00000001372090	12/24/02	1,694,744.00 USD	1,694,744.00 USD	12/31/03
00000001372091	12/24/02	245,442.06 USD	245,442.06 USD	12/31/03
00000001372093	12/24/02	75,362.59 USD	75,362.59 USD	12/31/03
00000001372095	12/24/02	1,480,229.00 USD	1,480,229.00 USD	12/31/03
00000001372097	12/24/02	2,170,738.00 USD	2,170,738.00 USD	12/31/03
00000001372098	12/24/02	875,000.00 USD	875,000.00 USD	12/31/03
00000001372099	12/24/02	3,770,659.00 USD	3,770,659.00 USD	12/31/03
00000001372141	12/30/02	6,579,829.19 USD	6,579,829.19 USD	12/31/03
00000001372146	12/26/02	355,096.45 CAD	264,795.42 USD	12/31/03
00000001372150	12/26/02	322,178.78 USD	322,178.78 USD	12/31/03
00000001372154	12/26/02	552,674.00 CAD	412,129.00 USD	12/31/03
00000001372270	12/30/02	13,499.68 USD	13,499.68 USD	12/31/03
00000001372390	12/31/02	1,034,000.00 USD	1,034,000.00 USD	12/31/03
00000001372392	12/31/02	2,748,570.00 USD	2,748,570.00 USD	12/31/03
00000001372393	12/31/02	408,294.00 USD	408,294.00 USD	12/31/03
00000001373397	12/31/02	409,750.80 USD	409,750.80 USD	12/31/03
00000001379144	12/31/02	329,378.00 USD	329,378.00 USD	12/31/03

00000001326034	05/20/02	24,092,000.00 USD		24,092,000.00 USD	12/31/07
00000001331665	5/30/02	7,750,000.00 USD		7,750,000.00 USD	12/31/07
00000001382482	03/17/03	19,351,195.00 GBP		32,343,587.32 USD	12/31/07
00000001410954	01/01/03	25,800,000.00 USD		25,800,000.00 USD	12/31/07
00000001365907	12/04/02	10,000,000.00 USD		10,000,000.00 USD	12/31/06
TOTAL			$	162,234,763.58 USD

*: INDICATES BACK-TO-BACK LETTERS OF CREDIT (originally issued to Fleet National Bank) which are not included in the Total of Outstanding Balances in USD.

Total Outstanding LCs in USD as of the Closing Date:

ARCH INSURANCE COMPANY	$	11,428,305.00
ARCH REINSURANCE COMPANY	$	10,060,571.05
ARCH REINSURANCE LTD.	$	162,234,763.58
TOTAL	$	183,723,639.63

Schedule 2

Commitments and Notice Addresses of the Lenders

Lender	Notice Address	Commitment		Pro Rata Share
Fleet National Bank	777 Main Street Hartford, CT 06115 Attn: Lawrence Davis Telephone: (860) 952-7559 Facsimile: (860) 986-1264 E-mail: lawrence_m_davis@fleet.com	$	140,000,000	56	%
Barclays Bank	54 Lombard Street London EC3V 9EX Attn: Richard Askey Telephone: +44 (0) 207 699 3124 Facsimile: +44 (0) 207 699 2407 E-mail: richard.gl.askey@barclayscorporate.com	$	60,000,000	24	%
Comerica Bank	500 Woodward Avenue Detroit, MI 48275-3331 Attn: Martin G. Ellis Telephone: (313) 222-9443 Facsimile: (313) 222-5466 E-mail: mgellis@comerica.com	$	50,000,000	20	%

Exhibit A

[Form of Letters of Credit]

Exhibit B

[Form of Security Agreement]

Exhibit C

[Form of Standby Letter of Credit Application]

Exhibit D

Form of Assignment and Acceptance

Assignment and Acceptance

Dated , 20

Reference is made to the Amended and Restated Letter of Credit and Reimbursement Agreement dated as of April 17, 2002 and amended and restated as of August 12, 2003 (the "Agreement"), by and among Arch Reinsurance Ltd. ("Reinsurance"), Arch Reinsurance Company ("Arch Company"), Alternative Re Limited ("Alternative") and Arch Insurance Company (formerly known as First American Insurance Company) ("Arch Insurance," each of Reinsurance, Arch Company, Alternative and Arch Insurance, individually, an "Obligor" and collectively, the "Obligors"), the lenders from time to time party to such Agreement (the "Lenders"), and Fleet National Bank ("Fleet"), as agent for the Lenders (when acting in such capacity and not as a Lender or the Issuing Lender, the "Agent") and as Issuing Lender. Terms defined in the Agreement are used herein with the same meaning.

(the "Assignor") and (the "Assignee") agree as follows:

1. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, the percentage interest specified on Schedule 1 hereto in and to all of the Assignor's rights and obligations under the Agreement as of the date hereof (after giving effect to any other assignments thereof made prior to the date hereof, whether or not such assignments have become effective, but without giving effect to any other assignments thereof also made on the date hereof), including without limitation, such percentage interest in the Assignor's Commitment, the Reimbursement Obligations owing to the Assignor, and the fees payable to the Assignor under the Agreement.

2. The Assignor (i) represents and warrants that as of the date hereof its Commitment (after giving effect to any other assignments thereof made prior to the date hereof, whether or not such assignments have become effective, but without giving effect to any other assignments thereof also made on the date hereof) is in the dollar amount specified as the Assignor's Commitment on Schedule 1 hereof and its Pro Rata Share of the aggregate outstanding Letter of Credit Obligations and Reimbursement Obligations (after giving effect to any other assignments thereof made prior to the date hereof, whether or not such assignments have become effective, but without giving effect to any other assignments thereof also made on the date hereof) is in the dollar amount specified as such on Schedule 1 hereto; (ii) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (iii) makes no representation or

warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Agreement or any other instrument or document furnished pursuant thereto; and (iv) makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Obligor or the performance or observance by any party of any of its respective obligations under the Agreement or any other instrument or document furnished pursuant thereto.

3. The Assignee (i) acknowledges that other than as provided in this Assignment and Acceptance, the Assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Agreement or any other instrument or document furnished pursuant hereto; (ii) acknowledges that the Assignor makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Obligor or the performance or observance by any party of any of its respective obligations under the Agreement or any other instrument or document furnished pursuant hereto; (iii) confirms that it has received a copy of the Agreement, together with copies of the financial statements referred to in Section 5.1(b) thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (iv) agrees that it will, independently and without reliance upon the Agent, the Assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Agreement; (v) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under the Agreement as are delegated to the Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (vi) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Agreement are required to be performed by it as a Lender; and (viii) specifies as its notice address the office set forth beneath its name on the signature pages hereof.

4. Following the execution of this Assignment and Acceptance by the Assignor and the Assignee, it will be delivered to the Agent for acceptance and recording by the Agent. The effective date of this Assignment and Acceptance shall be the date of acceptance thereof by the Agent and the receipt of the consent hereto by the Borrower, unless otherwise specified on Schedule 1 hereto (the "Effective Date").

5. Upon such acceptance and recording by the Agent and such receipt of such consent by the Borrower, as of the Effective Date, (i) the Assignee shall be a party to the Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights (except its rights to indemnification under Section 8.5 of the Agreement) and be released from its obligations under the Agreement arising prior to the Effective Date.

6. Upon such acceptance and recording by the Agent, from and after the Effective Date, the Agent shall make all payments under the Agreement in respect of the interest assigned hereby (including without limitation, all payments of principal, interest and facility fees with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Agreement for periods prior to the Effective Date directly between themselves.

7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of Connecticut.

IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Acceptance to be executed by their respective officers thereunto duly authorized, as of the date first above written.

	[NAME OF ASSIGNOR]
	By
		Name:
		Title:
	[NAME OF ASSIGNEE]
	By
		Name:
		Title:

	Address for Notices:


	Attn:
	Telephone:
	Facsimile:
	E-mail:
Accepted this day
of ,
FLEET NATIONAL BANK, as Agent

By
	Name:
	Title:

Schedule 1 to Assignment and Acceptance

Percentage interest assigned and assumed:		%

Assignor's Commitment:	$

Assignor's Pro Rata Share of aggregate outstanding Letter of Credit Obligations and Reimbursement Obligations:	$

Commitment assumed by Assignee:	$

Commitment retained by Assignor:	$

Effective Date of Assignment and Acceptance:			, 20

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Exhibit 10.5

AMENDED AND RESTATED LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT
ARTICLE I DEFINITIONS AND INTERPRETATION
ARTICLE II TERMS OF THE LETTER OF CREDIT FACILITY
ARTICLE III CONDITIONS OF ISSUANCE OF LETTERS OF CREDIT
ARTICLE IV REPRESENTATIONS AND WARRANTIES
ARTICLE V COVENANTS
ARTICLE VI EVENTS OF DEFAULT AND REMEDIES
ARTICLE VII THE AGENT.
ARTICLE VIII MISCELLANEOUS

Schedule 2

Commitments and Notice Addresses of the Lenders

Exhibit A

Exhibit B

Exhibit C

Form of Assignment and Acceptance Assignment and Acceptance Dated , 20

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Exhibit 10.6

AMENDED AND RESTATED LETTER OF CREDIT AND
REIMBURSEMENT AGREEMENT AMENDMENT NO. 1

This Amended and Restated Letter of Credit and Reimbursement Agreement Amendment No. 1 dated as of August 20, 2003 (the " Amendment ") is by and among Arch Reinsurance Ltd. (" Reinsurance "), Arch Reinsurance Company (" Arch Company "), Alternative Re Limited (" Alternative "), Arch Insurance Company (formerly known as First American Insurance Company) (" Arch Insurance ," and each of Reinsurance, Arch Company, Alternative and Arch Insurance, individually, an " Obligor " and collectively, the " Obligors "), the lenders from time to time party to the Reimbursement Agreement referred to below (the "Lenders") and Fleet National Bank, as Agent and Issuing Lender ("Fleet").

WHEREAS, the Obligors, Fleet and the Lenders entered into an Amended and Restated Letter of Credit and Reimbursement Agreement dated as of August 12, 2003 (the " Reimbursement Agreement "; terms defined therein and not otherwise defined herein are being used herein as so defined); and

WHEREAS, Alternative desires to be removed from the Reimbursement Agreement as an Obligor and terminate the Security Agreement and the Custodian Agreement to which it is a party;

NOW, THEREFORE, the Obligors, the Lenders and Fleet agree as follows:

1. Effective as of the date hereof, the Reimbursement Agreement is hereby amended as follows:

(a) The definition of "Obligor" set forth in Section 1.1 of the Agreement is amended and restated in its entirety and the following is substituted therefor:

" Obligor " means, individually, each of Reinsurance, Arch Company and Arch Insurance.

(b) All references in the Reimbursement Agreement to "Alternative" and "Alternative Re Limited" are hereby deleted.

2. Effective as of the date hereof, the Security Agreement to which Alternative is a party and the Custodian Agreement to which Alternative is a party shall be terminated and be of no further force and effect and all security interests, liens ad encumbrances which Alternative has granted to the Agent on behalf of the Lenders pursuant to the Security Documents shall be automatically released. Alternative may prepare and execute on behalf of the Agent UCC termination statements or such other documents and releases as are necessary to evidence the release and termination of all liens and security interest held in favor of the Agent on behalf of the Lenders in respect of the assets of Alternative and Alternative may file UCC termination statements in such jurisdictions where necessary to evidence the termination of such liens and security interests. The Lenders and Fleet hereby agree to deliver to Alternative, at Alternative's

sole cost and expense, such other releases, discharges, termination statements and similar documents as Alternative may reasonably request in connection with the release of the liens and security interests granted to the Agent in favor of the Lenders.

3. This Amendment shall be governed by the laws of the State of Connecticut without giving effect to principles of conflict of laws, and may be signed in counterparts, each of which shall be regarded as the original and all of which shall constitute one and same agreement.

4. This Amendment contains all of the terms agreed upon by the parties with respect to the subject matter hereof. This Amendment may be amended or the provisions thereof waived only by a written instrument signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought.

5. All other terms and provisions of the Agreement shall remain in full force and effect, except as expressly modified herein.

6. This Amendment and any instrument delivered in connection herewith may be executed in any number of counterparts with the same effect as if the signatures on all counterparts are upon the same instrument.

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered by their respective officers, as an instrument under seal, as of the date first above written.

		ARCH REINSURANCE LTD.
		By:	/s/ DWIGHT EVANS Name: Dwight Evans Title: President
		By:	Name: Title:
		ARCH REINSURANCE COMPANY
		By:	/s/ JOHN F. RATHGEBER Name: John F. Rathgeber Title: Managing Director & Chief Operating Officer
		ARCH INSURANCE COMPANY
		By:	/s/ FRED S. EICHLER Name: Fred S. Eichler Title: Senior Vice President & Chief Financial Officer
		ALTERNATIVE RE LIMITED
		By:	/s/ DAWNA FERGUSON Name: Dawna Ferguson Title: Secretary

		FLEET NATIONAL BANK, AS AGENT AND ISSUING LENDER
		By:	/s/ LAWRENCE DAVIS Name: Lawrence Davis Title: Portfolio Manager
		COMERICA BANK, AS LENDER
		By:	Name: Title:
		BARCLAYS BANK, AS LENDER
		By:	/s/ JEREMY RITCHIE Name: Jeremy Ritchie Title: Relationship Director's Assistant

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Exhibit 10.6

AMENDED AND RESTATED LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT AMENDMENT NO. 1

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Exhibit 10.7

[CONFORMED AS EXECUTED]

CREDIT AGREEMENT

dated as of

September 12, 2003

among

ARCH CAPITAL GROUP LTD.,

The Lenders Party Hereto,

COMMERZBANK AG, NEW YORK BRANCH,

CREDIT SUISSE FIRST BOSTON,
ACTING THROUGH ITS CAYMAN ISLANDS BRANCH

and

WACHOVIA BANK, NATIONAL ASSOCIATION,
as Documentation Agents,

BANK OF AMERICA, N.A.,
as Syndication Agent

and

JPMORGAN CHASE BANK,
as Administrative Agent

J.P. MORGAN SECURITIES INC.,

and

BANC OF AMERICA SECURITIES LLC,
as Joint Bookrunners and Joint Lead Arrangers

Table of Contents

		Page
ARTICLE I Definitions		1
	Section 1.01. Defined Terms	1
	Section 1.02. Classification of Loans and Borrowings	19
	Section 1.03. Terms Generally	19
	Section 1.04. Accounting Terms; GAAP	19
ARTICLE II The Credits		20
	Section 2.01. Commitments and Revolving Credit Term-Out	20
	Section 2.02. Loans and Borrowings	21
	Section 2.03. Requests for Revolving Borrowings	22
	Section 2.04. Funding of Borrowings	22
	Section 2.05. Interest Elections	23
	Section 2.06. Termination and Reduction of Commitments	24
	Section 2.07. Repayment of Loans; Evidence of Debt	25
	Section 2.08. Prepayment of Loans	26
	Section 2.09. Fees	29
	Section 2.10. Interest	29
	Section 2.11. Alternate Rate of Interest	30
	Section 2.12. Increased Costs	31
	Section 2.13. Break Funding Payments	32
	Section 2.14. Taxes	32
	Section 2.15. Payments Generally; Pro Rata Treatment; Sharing of Set-offs	34
	Section 2.16. Mitigation Obligations; Replacement of Lenders	35
ARTICLE III Representations and Warranties		36
	Section 3.01. Corporate Status	36
	Section 3.02. Corporate Power and Authority	36
	Section 3.03. No Contravention of Laws, Agreements or Organizational Documents	37
	Section 3.04. Litigation and Contingent Liabilities	37
	Section 3.05. Use of Proceeds; Margin Regulations	37
	Section 3.06. Approvals	37
	Section 3.07. Investment Company Act	37
	Section 3.08. Public Utility Holding Company Act	37
	Section 3.09. True and Complete Disclosure; Projections and Assumptions	38
	Section 3.10. Financial Condition; Financial Statements	38
	Section 3.11. Tax Returns and Payments	39
	Section 3.12. Compliance with ERISA	39
	Section 3.13. Subsidiaries	39
	Section 3.14. Capitalization	40
	Section 3.15. Indebtedness	40
	Section 3.16. Compliance with Statutes, etc.	40
	Section 3.17. Insurance Licenses	41
	Section 3.18. Insurance Business	41

ARTICLE IV Conditions		41
	Section 4.01. Effective Date	41
	Section 4.02. Each Credit Event	43
ARTICLE V Affirmative Covenants		43
	Section 5.01. Information Covenants	44
	Section 5.02. Books, Records and Inspections	46
	Section 5.03. Insurance	46
	Section 5.04. Payment of Taxes	46
	Section 5.05. Maintenance of Existence	46
	Section 5.06. Compliance with Statutes, etc.	47
	Section 5.07. ERISA	47
	Section 5.08. Maintenance of Property	48
	Section 5.09. Maintenance of Licenses and Permits	48
	Section 5.10. Claims Paying Ratings	48
	Section 5.11. End of Fiscal Years; Fiscal Quarters	48
ARTICLE VI Negative Covenants		48
	Section 6.01. Changes in Business and Investments	48
	Section 6.02. Consolidations, Mergers, Sales of Assets and Acquisitions	49
	Section 6.03. Liens	50
	Section 6.04. Indebtedness	52
	Section 6.05. Issuance of Stock	52
	Section 6.06. Dissolution	52
	Section 6.07. Restricted Payments	52
	Section 6.08. Transactions with Affiliates	53
	Section 6.09. Maximum Leverage Ratio	53
	Section 6.10. Minimum Consolidated Tangible Net Worth	53
	Section 6.11. Limitation on Certain Restrictions on Subsidiaries	53
	Section 6.12. Private Act	54
ARTICLE VII Events of Default		54
	Section 7.01. Payments	54
	Section 7.02. Representations, etc.	54
	Section 7.03. Covenants	55
	Section 7.04. Default under other Agreements	55
	Section 7.05. Bankruptcy, etc.	55
	Section 7.06. ERISA	56
	Section 7.07. Judgments	56
	Section 7.08. Insurance Licenses	56
	Section 7.09. Change of Control	57

ARTICLE VIII The Administrative Agent		57
	Section 8.01. Appointment	57
	Section 8.02. Administrative Agent in its Individual Capacity	57
	Section 8.03. Exculpatory Provisions	57
	Section 8.04. Reliance	58
	Section 8.05. Delegation of Duties	58
	Section 8.06. Resignation	58
	Section 8.07. Non-Reliance	59
ARTICLE IX Miscellaneous		59
	Section 9.01. Notices	59
	Section 9.02. Waivers; Amendments	60
	Section 9.03. Expenses; Indemnity; Damage Waiver	61
	Section 9.04. Successors and Assigns	62
	Section 9.05. Survival	65
	Section 9.06. Counterparts; Integration; Effectiveness	66
	Section 9.07. Severability	66
	Section 9.08. Right of Setoff	66
	Section 9.09. Governing Law; Jurisdiction; Consent to Service of Process	66
	Section 9.10. WAIVER OF JURY TRIAL	67
	Section 9.11. Headings	67
	Section 9.12. Confidentiality	67
	Section 9.13. Interest Rate Limitation	68
	Section 9.14. Calculations	68
	Section 9.15. Euro	69
	Section 9.16. Judgment Currency	69
	Section 9.17. Special Provisions Relating to Currencies Other Than Dollars	70
	Section 9.18. Pro Rata Borrowings	70
SCHEDULES:
Schedule 2.01—Commitments
Schedule 3.13—Subsidiaries
Schedule 3.14—Capitalization
Schedule 3.15—Existing Indebteness
Schedule 3.17—Insurance Licenses
Schedule 6.03—Liens
Schedule 6.05—Preferred Stock
EXHIBITS:
Exhibit A—Form of Assignment and Assumption
Exhibit B—Form of Borrowing Request

iii

Exhibit C-1—Form of Opinion of Borrower's Special U.S.Counsel
Exhibit C-2—Form of Opinion of Borrower's Special Bermuda Counsel
Exhibit D—Form of Officers' Certificate

CREDIT AGREEMENT dated as of September 12, 2003, among ARCH CAPITAL GROUP LTD., the LENDERS party hereto, JPMORGAN CHASE BANK, as Administrative Agent, BANK OF AMERICA, N.A., as Syndication Agent and COMMERZBANK AG, NEW YORK BRANCH, CREDIT SUISSE FIRST BOSTON, ACTING THROUGH ITS CAYMAN ISLANDS BRANCH, and WACHOVIA BANK, NATIONAL ASSOCIATION, as Documentation Agents.

The parties hereto agree as follows:

ARTICLE I

Definitions

Section 1.01. Defined Terms . As used in this Agreement, the following terms have the meanings specified below:

" ABR ", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate.

" Acquired Indebtedness " means Indebtedness of a Subsidiary of the Borrower acquired pursuant to an acquisition not prohibited under this Agreement (or Indebtedness assumed at the time of such acquisition of an asset securing such Indebtedness), provided that such Indebtedness was not incurred in connection with, or in anticipation or contemplation of, such acquisition.

" Additional Costs " shall mean, with respect to any Lender lending from an office in the United Kingdom or a Participating Member State, the amount notified by such Lender to the Borrower and the Administrative Agent as its reasonable determination of the proportion of the cost attributable to the Alternate Currency Loans made by such Lender from that office of complying with the fee and minimum reserve requirements of the Bank of England and the UK Financial Services Authority or the European Central Bank in respect of loans made from that office.

" Adjusted LIBO Rate " means, with respect to any Eurocurrency Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next ¹ / 16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate.

" Administrative Agent " means JPMorgan Chase Bank, in its capacity as administrative agent for the Lenders hereunder.

" Administrative Questionnaire " means an Administrative Questionnaire in a form supplied by the Administrative Agent.

" Affected Loans " has the meaning provided in Section 2.08(i).

" Affiliate " means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

" Agreement " means this Credit Agreement, as modified, supplemented, amended, restated (including any amendment and restatement hereof), extended or renewed from time to time.

" Alternate Base Rate " means, for any day, a rate per annum equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus ¹ / 2 of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively.

" Alternate Currency " means each of Euros and Pounds Sterling.

" Alternate Currency Loan " means any Loan denominated in an Alternate Currency.

" Applicable Commitment Fee Rate " means 0.10%.

" Applicable Insurance Regulatory Authority " means, when used with respect to any Regulated Insurance Company, (x) the insurance department or similar administrative authority or agency located in each state or jurisdiction (foreign or domestic) in which such Regulated Insurance Company is domiciled or (y) to the extent asserting regulatory jurisdiction over such Regulated Insurance Company, the insurance department, authority or agency in each state or jurisdiction (foreign or domestic) in which such Regulated Insurance Company is licensed, and shall include any Federal or national insurance regulatory department, authority or agency that may be created and that asserts regulatory jurisdiction over such Regulated Insurance Company.

" Applicable Percentage " means, with respect to any Lender, the percentage of the total Commitments represented by the sum of such Lender's Commitments. If the Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Commitments most recently in effect, giving effect to any assignments.

" Applicable Rate " means, for any day, with respect to any Loan maintained as ABR Loans or Eurocurrency Loans, for any Margin Adjustment Period, from and after any Start Date to and including the corresponding End Date, the respective percentage per annum set forth below opposite the respective Level ( i.e. , Level 3, Level 2 or Level 1, as the case may be) indicated to have been achieved on the applicable Test Date for such Start Date (as shown in the respective officer's certificate delivered pursuant to Section 5.01(c)):

Level	Leverage Ratio	Loans maintained as Eurocurrency Loans		Loans maintained as ABR Loans
3	Greater than 0.20 to 1.00	1.50	%	0.50	%
2	Greater than 0.10 to 1.00 but less than or equal to 0.20 to 1.00	1.25	%	0.25	%
1	Less than or equal to 0.10 to 1.0	1.00	%	0	%

; provided , however , that if the Borrower fails to deliver the financial statements required to be delivered pursuant to Section 5.01(a) or (b) (accompanied by the officer's certificate required to be delivered pursuant to Section 5.01(c) showing the applicable Leverage Ratio on the relevant Test Date) on or prior to the respective date required by such Sections, then Level 3 pricing shall apply until such time, if any, as the financial statements required as set forth above and the accompanying officer's certificate have been delivered showing the pricing for the respective Margin Adjustment Period is at a Level below Level 3 (it being understood that, in the case of any late delivery of the financial statements and officer's certificate as so required, any reduction in the Applicable Rate shall apply only from and after the date of the delivery of the complying financial statements and officer's certificate); provided , further , that (i) except when clause (ii) below is applicable Level 2 pricing shall apply for the period from the Effective Date to the date of the delivery of the Borrower's consolidated financial statements (and related officer's certificate) in respect of its fiscal year ending December 31, 2004 and (ii) Level 3 pricing shall apply at all times when any Event of Default is in existence.

" Approved Currency " means each of Dollars and each Alternate Currency.

" Approved Currency Commitment " means, with respect to each Approved Currency Lender, the commitment of such Approved Currency Lender to make Approved Currency Revolving Loans hereunder, expressed as an amount representing the maximum aggregate Principal Amount of such Lender's Approved Currency Revolving Credit Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.06 and (b) reduced or increased from time to time pursuant to assignments by or to such Approved Currency Lender pursuant to Section 9.04. The initial amount of each Approved Currency Lender's Approved Currency Commitment is set forth on Schedule 2.01, or in the Assignment and Assumption pursuant to which such Approved Currency Lender shall have assumed its Approved Currency Commitment, as applicable. The initial aggregate amount of the Approved Currency Lenders' Approved Currency Commitments is $100,000,000.

" Approved Currency Lenders " means each person listed on Schedule 2.01 with an Approved Currency Commitment (or, after the Commitment Expiration Date, each Lender with outstanding Approved Currency Term Loans) and any other Person that shall have become a

party as an Approved Currency Lender hereto pursuant to an Assignment and Assumption, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Assumption.

" Approved Currency Revolving Credit Exposure " means, with respect to any Approved Currency Lender at any time, the sum of the outstanding Principal Amount of such Approved Currency Lender's Approved Currency Revolving Loans at such time.

" Approved Currency Revolving Loan " has the meaning provided in Section 2.01(b).

" Approved Currency Scheduled Term Loan Repayment " has the meaning provided in Section 2.08(h).

" Approved Currency Term Loans " means each Approved Currency Revolving Loan that is converted into a term loan on the Commitment Expiration Date pursuant to Section 2.01(d).

" Approved Fund " has the meaning assigned to such term in Section 9.04(b).

" Arch Shareholder Group " means Warburg Pincus (Bermuda) Private Equity VIII, L.P., Warburg Pincus (Bermuda) International Partners, L.P., Warburg Pincus Netherlands International Partners I, C.V., Warburg Pincus Netherlands International Partners II, C.V., HFCP IV (Bermuda), L.P., H&F International Partners IV-A (Bermuda), L.P., H&F International Partners IV-B (Bermuda), L.P. and H&F Executive Fund IV (Bermuda), L.P.

" Assignment and Assumption " means an assignment and assumption entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.04), and accepted by the Administrative Agent, in the form of Exhibit A or any other form approved by the Administrative Agent.

" Bankruptcy Code " has the meaning provided in Section 7.05.

" Bermuda Companies Law " means the Companies Act 1981 of Bermuda and other relevant Bermuda law.

" Board " means the Board of Governors of the Federal Reserve System of the United States of America.

" Borrower " means Arch Capital Group Ltd., a company organized under the laws of Bermuda.

" Borrowing " means Loans of the same Class and Type, made, converted or continued on the same date and, in the case of Eurocurrency Loans, as to which a single Interest Period is in effect.

" Borrowing Request " means a request by the Borrower for a Revolving Borrowing in accordance with Section 2.03.

" Business Day " means (i) for all purposes other than as covered by clauses (ii) and (iii) below, any day excluding Saturday, Sunday and any day which shall be in the City of New York a legal holiday or a day on which banking institutions are authorized by law or other governmental actions to close, (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurocurrency Loans, any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks in the London interbank market and, (iii) with respect to any notices or determinations in respect of Loans denominated in Euros, any day which is a Business Day described in clause (i) and which is also a day on which the TARGET payment system is open for settlement of payment in Euros.

" Capital Lease Obligations " of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.

" Change in Control " means (a) any Person or group of Persons (as used in Sections 13 and 14 of the Securities Exchange Act of 1934 and the rules and regulations thereunder), other than one or more Permitted Holders, shall have become the beneficial owner (as defined in rules promulgated by the SEC) of more than 35% of the voting securities of the Borrower or (b) occupation of a majority of the seats (other than vacant seats) of the board of directors of the Borrower by Persons who are neither (i) nominated by the board of directors of the Borrower nor (ii) appointed by directors so nominated.

" Change in Law " means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender (or, for purposes of Section 2.12(b), by any lending office of such Lender or by such Lender's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement.

" Charges " has the meaning provided in Section 9.13.

" Class ", when used in reference to (i) any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Dollar Revolving Loans, Dollar Term Loans, Approved Currency Revolving Loans or Approved Currency Term Loans and (ii) any Commitment, refers to whether such Commitments are Dollar Commitments or Approved Currency Commitments.

" Code " means the Internal Revenue Code of 1986, as amended from time to time.

" Commitment " means each of the Dollar Commitments and the Approved Currency Commitments.

" Commitment Expiration Date " means September 10, 2004.

" Consolidated Indebtedness " means, as of any date of determination, all Indebtedness of the Borrower and its Subsidiaries which at such time would appear on the liability side of a balance sheet of such Persons prepared on a consolidated basis in accordance with GAAP. For the avoidance of doubt, "Consolidated Indebtedness" shall not include any Guarantees of any Person under or in connection with letters of credit or similar facilities so long as no drawings or payments have been made in respect thereof.

" Consolidated Net Income " means, for any period, net income (or loss) after income taxes of the Borrower and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP.

" Consolidated Net Worth " means, as of any date of determination, the Net Worth of the Borrower and its Subsidiaries determined on a consolidated basis in accordance with GAAP after appropriate deduction for any minority interests in Subsidiaries.

" Consolidated Tangible Net Worth " means, as of the date of any determination, Consolidated Net Worth of the Borrower and its Subsidiaries on such date less the amount of all intangible items included therein, including, without limitation, goodwill, franchises, licenses, patents, trademarks, trade names, copyrights, service marks, brand names and write-ups of assets.

" Consolidated Total Capital " means, as of any date of determination, the sum of (i) Consolidated Indebtedness and (ii) Consolidated Net Worth at such time.

" Control " means the possession, directly or indirectly, of the power (i) to vote 10% or more of the securities having ordinary voting power for the election of directors of such corporation or (ii) to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. " Controlling " and " Controlled " have meanings correlative thereto.

" Credit Documents " means this Agreement and the promissory notes delivered pursuant to Section 2.07(e).

" Default " means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.

" Designated Subsidiaries " means American Independent Insurance Company, Personal Service Insurance Company and Western Diversified Casualty Insurance Company.

" Dividends " has the meaning provided in Section 6.07.

" Dispositions " has the meaning provided in Section 6.02(b).

" Documentation Agents " means each of Commerzbank AG, New York Branch, Credit Suisse First Boston, acting through its Cayman Islands Branch and Wachovia Bank, National Association, each in its capacity as a documentation agent under this Agreement.

" Dollar Commitment " means, with respect to each Dollar Lender, the commitment of such Dollar Lender to make Dollar Revolving Loans hereunder, expressed as an amount representing the maximum aggregate amount of such Dollar Lender's Dollar Revolving Credit Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.06 and (b) reduced or increased from time to time pursuant to assignments by or to such Dollar Lender pursuant to Section 9.04. The initial amount of each Dollar Lender's Dollar Commitment is set forth on Schedule 2.01, or in the Assignment and Assumption pursuant to which such Dollar Lender shall have assumed its Dollar Commitment, as applicable. The initial aggregate amount of the Dollar Lenders' Dollar Commitments is $200,000,000.

" Dollar Equivalent " means, at any time for the determination thereof in accordance with Section 9.14, the amount of Dollars which could be purchased with the amount of the relevant Alternate Currency involved in such computation at the spot exchange rate therefor as quoted by the Administrative Agent as of 11:00 a.m. (London Time) on the date three Business Days prior to the date of any determination thereof for purchase on such date.

" Dollar Lenders " means each Person listed on Schedule 2.01 with a Dollar Commitment (or, after the Commitment Expiration Date, each Lender with outstanding Dollar Term Loans) and any other Person that shall have become a party as a Dollar Lender hereto pursuant to an Assignment and Assumption, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Assumption.

" Dollar Revolving Credit Exposure " means, with respect to any Dollar Lender at any time, the sum of the outstanding Principal Amount of such Lender's Dollar Revolving Loans at such time.

" Dollar Revolving Loan " has the meaning provided in Section 2.01(a).

" Dollar Scheduled Term Loan Repayment " has the meaning set forth in Section 2.08(g).

" Dollar Term Loans " means each Dollar Revolving Loan that is converted into a term loan on the Commitment Expiration Date pursuant to Section 2.01(c).

" Dollars " or " $ " refers to lawful money of the United States of America.

" Effective Date " means the date on which the conditions specified in Section 4.01 are satisfied (or waived in accordance with Section 9.02).

" EMU Legislation " means the legislative measures of the European Council for the introduction of changeover to or operation of a single unified European currency.

" End Date " means, with respect to any Margin Adjustment Period, the last day of such Margin Adjustment Period.

" Environmental Law " means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation

or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters.

" Environmental Liability " means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

" Equity Interests " means, with respect to any Person, shares of capital stock of (or other ownership or profit interests in) such Person, warrants, options or other rights for the purchase or other acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or other acquisition from such Person of such shares (or such other interests), and other ownership or profit interests in such Person (including, without limitation, partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are authorized or otherwise existing on any date of determination.

" ERISA " means the Employee Retirement Income Security Act of 1974, as amended from time to time and the regulations promulgated and rulings issued thereunder. Section references to ERISA are to ERISA, as in effect at the date of this Agreement and any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor.

" ERISA Affiliate " means any corporation or trade or business which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as the Borrower or any of its Subsidiaries or is under common control (within the meaning of Section 414(c) of the Code) with the Borrower or any of its Subsidiaries.

" Euro " means the lawful currency of each of the Participating Member States.

" Eurocurrency ", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate.

" Event of Default " has the meaning assigned to such term in Article VII.

" Excluded Taxes " means, with respect to the Administrative Agent, any Lender, or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income or net profits by any jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar

tax imposed by any other jurisdiction in which the recipient is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section 2.16(b)), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending office) or is attributable to such Foreign Lender's failure to comply with Section 2.14(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 2.14(a).

" Existing LC Facility " has the meaning provided in Section 3.13(b).

" Federal Funds Effective Rate " means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.

" Financial Officer " means the chief financial officer, principal accounting officer, treasurer or controller of the Borrower.

" Foreign Lender " means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

" Foreign Pension Plan " means any plan, fund (including, without limitation, any superannuation fund) or other similar program established or maintained outside the United States of America by the Borrower or any one or more of its Subsidiaries primarily for the benefit of employees of the Borrower or such Subsidiaries residing outside the United States of America, which plan, fund or other similar program provides, or results in, retirement income, a deferral of income in contemplation of retirement or payments to be made upon termination of employment, and which plan is not subject to ERISA or the Code.

" GAAP " means generally accepted accounting principles in the United States of America.

" Governmental Authority " means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

" Guarantee " of or by any Person (the " guarantor ") means any obligation guaranteeing or intended to guarantee any Indebtedness, leases, dividends or other obligations (" primary obligations ") of any other Person (the " primary obligor ") in any manner, whether

directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (d) otherwise to assure or hold harmless the owner of such primary obligation against loss in respect thereof; provided , however , that the term Guarantee shall not include (x) endorsements of instruments for deposit or collection in the ordinary course of business or (y) obligations of any Regulated Insurance Company under Insurance Contracts, Reinsurance Agreements or Retrocession Agreements. The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith.

" Hazardous Materials " means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

" Hedging Agreements " means any foreign exchange contracts, currency swap agreements, commodity price hedging arrangements or other similar arrangements, or arrangements designed to protect against fluctuations in the currency values.

" Indebtedness " of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (d) all obligations of such Person in respect of the deferred purchase price of property or services, (e) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, provided that the amount of Indebtedness of such Person shall be the lesser of (A) the fair market value of such property at such date of determination (determined in good faith by the Borrower) and (B) the amount of such Indebtedness of such other Person, (f) all Guarantees by such Person of Indebtedness of others, (g) all Capital Lease Obligations of such Person, (h) all obligations of such Person under Interest Rate Protection Agreements and Hedging Agreements, and (i) all reimbursement obligations of such Person in respect of letters of credit, letters of guaranty, bankers' acceptances and similar credit transactions. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. For the avoidance of doubt, Indebtedness shall not include (v) trade payables (including payables under

insurance contracts and reinsurance payables) and accrued expenses in each case arising in the ordinary course of business, (w) obligations of Regulated Insurance Companies with respect to Policies, (x) obligations arising under deferred compensation plans of the Borrower and its Subsidiaries in effect on the date hereof or which have been approved by the board of directors of the Borrower, (y) obligations with respect to products underwritten by Regulated Insurance Companies in the ordinary course of business, including insurance policies, annuities, performance and surety bonds and any related contingent obligations and (z) reinsurance agreements entered into by any Regulated Insurance Company in the ordinary course of business.

" Indemnitee " has the meaning provided in Section 9.03(b).

" Indemnified Taxes " means Taxes other than Excluded Taxes.

" Information " has the meaning provided in Section 9.12.

" Initial Approved Currency Commitment Amount " means the initial aggregate amount of all of the Approved Currency Commitments as in effect on the Effective Date.

" Insignificant Subsidiary " means any Subsidiary, other than Arch Reinsurance Company, Arch Reinsurance Ltd., American Independent Company, Arch Insurance Company, Arch Specialty Insurance Company and Arch Excess & Surplus Insurance Company, which has assets, earnings or revenues which, if aggregated with the assets, earnings or revenues, as the case may be, of all other Subsidiaries of the Borrower with respect to which an event described under Section 7.05 has occurred and is continuing, would have assets, earnings or revenues, as the case may be, in an amount less than 10% of the consolidated assets, earnings or revenues, as the case may be, of the Borrower and its Subsidiaries as of the end of the most recent fiscal quarter of year of the Borrower for which financial statements are available.

" Insurance Business " means one or more aspects of the business of selling, issuing or underwriting insurance or reinsurance.

" Insurance Contract " means any insurance contract or policy issued by a Regulated Insurance Company but shall not include any Reinsurance Agreement or Retrocession Agreement.

" Insurance Licenses " has the meaning provided in Section 3.17.

" Interest Election Request " means a request by the Borrower to convert or continue a Revolving Borrowing or a Term Borrowing in accordance with Section 2.05.

" Interest Payment Date " means (a) with respect to any ABR Loan, the last day of each March, June, September and December and (b) with respect to any Eurocurrency Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurocurrency Borrowing with an Interest Period of more than three months' duration, each day that would have been an Interest Payment Date had successive Interest Periods of three months duration been applicable to such Borrowing.

" Interest Period " means, with respect to any Eurocurrency Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months (or, with the consent of each Lender, nine or twelve months) thereafter, as the Borrower may elect; provided , that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of a Eurocurrency Borrowing only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period pertaining to a Eurocurrency Borrowing that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and, in the case of a Eurocurrency Borrowing, thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing.

" Interest Rate Protection Agreement " means any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedging agreement, interest rate floor agreement or other similar agreement or arrangement.

" Issuing Country " has the meaning specified in Section 9.15.

" Judgment Currency " has the meaning provided in Section 9.16(a).

" Judgment Currency Conversion Date " has the meaning provided in Section 9.16(a).

" Legal Requirements " means all applicable laws, rules and regulations made by any governmental body or regulatory authority (including, without limitation, any Applicable Insurance Regulatory Authority) having jurisdiction over the Borrower or a Subsidiary of the Borrower.

" Lenders " means, collectively, the Dollar Lenders and the Approved Currency Lenders.

" Leverage Ratio " means the ratio of (i) Consolidated Indebtedness to (ii) Consolidated Total Capital.

" LIBO Rate " means with respect to any Eurocurrency Borrowing for any Interest Period, the rate appearing on Page 3750 (or other appropriate page if the relevant currency does not appear on such page) of the Dow Jones Market Service (or on any successor or substitute page or pages of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page or pages of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to deposits in the relevant currency in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for deposits in the relevant currency with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the " LIBO Rate " with respect to such Eurocurrency Borrowing for such Interest Period shall

be the rate at which deposits in the relevant currency of $5,000,000 (or Dollar Equivalent thereof, as the case may be), and for a maturity comparable to such Interest Period are offered by the Administrative Agent. Notwithstanding anything to the contrary contained above, in the event the Administrative Agent or the Required Lenders, as the case may be, have made any determination pursuant to Section 2.11(a) or (b) in respect of any Eurocurrency Loans denominated in an Alternate Currency, the LIBO Rate for such Eurocurrency Loans determined pursuant to this definition shall instead be the rate determined by the Administrative Agent as the all-in-cost of funds denominated in such Alternate Currency with maturities comparable to the Interest Period applicable thereto.

" Lien " means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.

" Loans " means (i) prior to the Commitment Expiration Date, each Revolving Loan and (ii) on or after the Commitment Expiration Date, each Term Loan.

" Margin Adjustment Period " means each period which shall commence on the date upon which the respective officer's certificate is delivered pursuant to Section 5.01(c) (together with the related financial statements pursuant to Section 5.01(a) or (b), as the case may be) and which shall end on the date of actual delivery of the next officer's certificate pursuant to Section 5.01(c) (and related financial statements) or the latest date on which such next officer's certificate (and related financial statements) is required to be so delivered; it being understood that the first Margin Adjustment Period shall commence with the delivery of the Borrower's financial statements (and related officer's certificate) in respect of its fiscal year ending December 31, 2004.

" Margin Stock " has the meaning provided in Regulation U.

" Material Adverse Effect " means, (i) a material adverse effect on the business, operations, property or financial condition of the Borrower and its Subsidiaries taken as a whole or (ii) a material adverse effect on (x) the rights and remedies of the Administrative Agent or the Lenders under the Credit Documents, (y) the ability of the Borrower to perform its obligations under the Credit Documents to which it is a party or (z) the legality, validity or enforceability of any Credit Document.

" Maturity Date " means September 11, 2006.

" Maximum Rate " has the meaning provided in Section 9.13.

" Multiemployer Plan " means any multiemployer plan as defined in Section 4001(a)(3) of ERISA, which is maintained or contributed to by (or to which there is an obligation to contribute of) the Borrower, any of its Subsidiaries or any of its ERISA Affiliates, and each such plan for the five year period immediately following the latest date on which the

Borrower, such Subsidiary or such ERISA Affiliate contributed to or had an obligation to contribute to such plan.

" Net Cash Proceeds " means, for any issuance of debt or equity, the gross cash proceeds (including any cash received by way of deferred payment pursuant to a promissory note, receivable or otherwise, but only and when received) received from such issuance, net of reasonable transaction costs (including, as applicable, any underwriting, brokerage or other customary commissions and reasonable legal, advisory and other fees and expenses associated therewith).

" Net Worth " means, as to any Person, the sum of its capital stock (including, without limitation, its preferred stock), capital in excess of par or stated value of shares of its capital stock (including, without limitation, its preferred stock), retained earnings and any other account which, in accordance with GAAP, constitutes stockholders equity, but excluding (i) any treasury stock and (ii) the effects of Financial Accounting Statement No. 115.

" Obligation Currency " has the meaning provided in Section 9.16(a).

" Other Taxes " means, any and all present or future stamp or documentary taxes or any other similar excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or performance under, this Agreement.

" Participant " has the meaning set forth in Section 9.04(c)

" Participating Member State " means any member state of the European Communities that adopts or has adopted the Euro as its lawful currency in accordance with the legislation of the European Union relating to European Monetary Union.

" PBGC " means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.

" Permitted Holders " means, (i) the Arch Shareholder Group and their respective Subsidiaries and any other Person of which any member of the Arch Shareholder Group is a direct or indirect Subsidiary, (ii) any investment fund or vehicle managed by, or the general partner of, any of the Persons described in preceding clause (i), (iii) each of the directors and executive officers of the Borrower or any of its Subsidiaries on the Effective Date and (iv) with respect to any of the foregoing who is an individual, any family member of such Person, any trust or partnership for the benefit, or any corporation that is a Subsidiary, of such Person or such Person's family members and any of such individuals', heirs, executors, successors and legal representatives.

" Permitted Subsidiary Indebtedness " means:

(a) Indebtedness of any Subsidiary of the Borrower existing on the date hereof and listed on Schedule 3.15 and refinancings by such Subsidiary thereof; provided that the aggregate principal amount of any such refinancing Indebtedness is not greater than

the aggregate principal amount of the Indebtedness being refinanced plus the amount of any premiums required to be paid thereon and fees and expenses associated therewith;

(b) Indebtedness of any Subsidiary of the Borrower under any Interest Rate Protection Agreement or Hedging Agreement, in each case entered into to protect any such Subsidiary against fluctuations in interest rates, currency exchange rates or other rate fluctuations and not entered into for speculative purposes;

(d) Indebtedness in respect of purchase money obligations and Capital Lease Obligations of any Subsidiary of the Borrower, and refinancings thereof; provided that the aggregate principal amount of all such Capital Lease Obligations does not exceed at any time outstanding $20,000,000 at the time of incurrence of any new Indebtedness under this clause (d);

(e) Indebtedness of any Subsidiary of the Borrower in respect of letters of credit issued to reinsurance cedents, or to lessors of real property in lieu of security deposits in connection with leases of any Subsidiary of the Borrower, in each case in the ordinary course of business;

(f) Indebtedness of any Subsidiary of the Borrower incurred in the ordinary course of business in connection with workers' compensation claims, self-insurance obligations, unemployment insurance or other forms of governmental insurance or benefits and pursuant to letters of credit or other security arrangements entered into in connection with such insurance or benefit;

(g) Acquired Indebtedness of Subsidiaries of the Borrower;

(h) additional Indebtedness of Subsidiaries of the Borrower not otherwise permitted under clauses (a) through (g) of this definition which, when added to the aggregate amount of all outstanding obligations secured by liens incurred by the Borrower pursuant to Section 6.03(r), shall not exceed at any time outstanding 5% of Consolidated Net Worth at the time of incurrence of any new Indebtedness under this clause (h); and

(i) Indebtedness arising from Guarantees made by any Subsidiary of the Borrower of Indebtedness of the type described in clauses (a) through (h) of this definition.

" Person " means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

" Plan " means any pension plan as defined in Section 3(2) of ERISA and subject to Title IV of ERISA, which is maintained or contributed to by (or to which there is an obligation to contribute of) the Borrower or any of its Subsidiaries or any of its ERISA Affiliates, and each such plan for the five year period immediately following the latest date on which the Borrower,

any of its Subsidiaries or any of its ERISA Affiliates maintained, contributed to or had an obligation to contribute to such plan.

" Policies " means all insurance policies, annuity contracts, guaranteed interest contracts and funding agreements (including riders to any such policies or contracts, certificates issued with respect to group life insurance or annuity contracts and any contracts issued in connection with retirement plans or arrangements) and assumption certificates issued or to be issued (or filed pending current review by applicable Governmental Authorities) by any Regulated Insurance Company and any coinsurance agreements entered into or to be entered into by any Regulated Insurance Company.

" Pounds Sterling " means lawful money of the United Kingdom.

" Prime Rate " means the rate of interest per annum publicly announced from time to time by JPMorgan Chase Bank as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective.

" Principal Amount " means (i) outstanding principal amount of each Loan denominated in Dollars, and/or (ii) the Dollar Equivalent of the outstanding principal amount of each Approved Currency Loan, as the context may require.

" Private Act " means separate legislation enacted in Bermuda with the intention that such legislation apply specifically to the Borrower, in whole or in part.

" Register " has the meaning set forth in Section 9.04(b).

" Regulated Insurance Company " means any Subsidiary of the Borrower, whether now owned or hereafter acquired, that is authorized or admitted to carry on or transact Insurance Business in any jurisdiction (foreign or domestic) and is regulated by any Applicable Insurance Regulatory Authority.

" Regulation D " means Regulation D of the Board as from time to time in effect and any successor to all or a portion thereof establishing reserve requirements.

" Regulation T " means Regulation T of the Board as from time to time in effect and any successor to all or a portion thereof establishing margin requirements.

" Regulation U " means Regulation U of the Board as from time to time in effect and any successor to all or a portion thereof establishing margin requirements.

" Regulation X " means Regulation X of the Board as from time to time in effect and any successor to all or a portion thereof establishing margin requirements.

" Reinsurance Agreement " means any agreement, contract, treaty, certificate or other arrangement whereby any Regulated Insurance Company agrees to transfer, cede or retrocede to another insurer or reinsurer all or part of the liability assumed or assets held by such Regulated Insurance Company under a policy or policies of insurance issued by such Regulated

Insurance Company or under a reinsurance agreement assumed by such Regulated Insurance Company.

" Related Parties " means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates.

" Relevant Repayment Percentage " means, with respect to any mandatory prepayment or repayment of any Class of Term Loans at any time, a fraction (expressed as a percentage), the numerator of which is equal to the aggregate Principal Amount of the Term Loans of such Class at such time and the denominator of which is equal to the aggregate Principal Amount of all Classes of Term Loans at such time.

" Required Lenders " means, at any time, Lenders having Revolving Credit Exposures and unused Commitments (or, after the Commitments have terminated, Lenders having outstanding Principal Amount of Loans) representing more than 50.0% of the sum of the total Revolving Credit Exposures and unused Commitments (or, after the Commitments have terminated, the Principal Amount of the outstanding Loans) at such time.

" Retrocession Agreement " means any agreement, contract, treaty or other arrangement whereby one or more insurers or reinsurers, as retrocessionaires, assume liabilities of reinsurers under a Reinsurance Agreement or other retrocessionaires under another Retrocession Agreement.

" Revolving Credit Exposure " means, with respect to any Lender at any time, the sum of outstanding Principal Amount of such Lender's Revolving Loans at such time.

" Revolving Loans " means each Dollar Revolving Loan and each Approved Currency Revolving Loan.

" SAP " means, with respect to any Regulated Insurance Company, the accounting procedures and practices prescribed or permitted by the Applicable Insurance Regulatory Authority of the state in which such Regulated Insurance Company is domiciled; it being understood and agreed that determinations in accordance with SAP for purposes of Article VII, including defined terms as used therein, are subject (to the extent provided therein) to Section 1.04.

" Scheduled Term Loan Repayment " means each Dollar Scheduled Term Loan Repayment and each Approved Currency Scheduled Term Loan Repayment.

" SEC " means the Securities and Exchange Commission or any successor thereto.

" Shareholders Agreement " means the Shareholders Agreement, dated as of November 20, 2001, by and among the Borrower, each member of the Arch Shareholder Group and each other party thereto, as amended through the Effective Date.

" Start Date " means, with respect to any Margin Adjustment Period, the first day of such Margin Adjustment Period.

" Statutory Reserve Rate " means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which the Administrative Agent is subject for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurocurrency Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.

" Statutory Statements " means, with respect to any Regulated Insurance Company for any fiscal year, the annual or quarterly financial statements of such Regulated Insurance Company as required to be filed with the Insurance Regulatory Authority of its jurisdiction of domicile and in accordance with the laws of such jurisdiction, together with all exhibits, schedules, certificates and actuarial opinions required to be filed or delivered therewith.

" subsidiary " means, with respect to any Person (the " parent ") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity of which securities or other ownership interests representing more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent.

" Subscription Agreement " means the Subscription Agreement, dated as of October 24, 2001, as amended November 20, 2001 by and among the Borrower and the Purchasers party thereto.

" Subsidiary " means any subsidiary of the Borrower.

" Syndication Agent " means Bank of America, N.A. in its capacity as syndication agent under this Agreement.

" Taxes " means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority.

" Term Loans " means each Dollar Term Loan and each Approved Currency Term Loan.

" Test Date " means, with respect to any Start Date, the last day of the most recent fiscal quarter of the Borrower ended immediately prior to such Start Date.

" Test Period " means (x) at all times after the delivery of financial statements pursuant to Section 5.01(a) in respect of the fiscal year ending closest to December 31, 2003 and

prior to the delivery of financial statements pursuant to Section 5.01(a) in respect of the fiscal year ending closest to December 31, 2004, the period from July 1, 2003 through December 31, 2003, and (y) at all times after the delivery of financial statements pursuant to Section 5.01(a) in respect of the fiscal year ending closest to December 31, 2004, the most recently ended fiscal year for which financial statements have been delivered pursuant to Section 5.01(a).

" Transactions " means the execution, delivery and performance by the Borrower of this Agreement, the borrowing of Loans and the use of the proceeds thereof.

" Type ", when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate Base Rate.

" Wholly-Owned Subsidiary " of any Person means any Subsidiary of such Person to the extent all of the capital stock or other ownership interests in such Subsidiary, other than directors' or nominees' qualifying shares, is owned directly or indirectly by such Person.

Section 1.02. Classification of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and referred to by Class ( e.g. , a "Dollar Revolving Loan") or by Type ( e.g. , a "Eurocurrency Loan") or by Class and Type ( e.g. , a "Eurocurrency Revolving Loan"). Borrowings also may be classified and referred to by Class ( e.g. , a "Revolving Borrowing") or by Type ( e.g. , a "Eurocurrency Borrowing") or by Class and Type ( e.g. , a "Eurocurrency Revolving Borrowing").

Section 1.03. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

Section 1.04. Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if the Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application

thereof on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith.

ARTICLE II

The Credits

Section 2.01. Commitments and Revolving Credit Term-Out. (a) Subject to the terms and conditions set forth herein, each Dollar Lender agrees to make a loan or loans (the "Dollar Revolving Loans") to the Borrower from time to time on or after the Effective Date and prior to the Commitment Expiration Date in an aggregate Principal Amount that will not result in (i) such Dollar Lender's Dollar Revolving Credit Exposure exceeding such Lender's Dollar Commitment or (ii) the total Dollar Revolving Credit Exposures exceeding the total Dollar Commitments. Each Dollar Revolving Loan shall be denominated in Dollars. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Dollar Revolving Loans.

(b) Subject to the terms and conditions set forth herein, each Approved Currency Lender agrees to make a loan or loans (the "Approved Currency Revolving Loans") to the Borrower from time to time on or after the Effective Date and prior to the Commitment Expiration Date in an aggregate Principal Amount that will not result in such Approved Currency Lender's Approved Currency Revolving Credit Exposure exceeding such Lender's Approved Currency Commitment or (ii) the total Approved Currency Revolving Credit Exposures exceeding the total Approved Currency Commitments. Each Approved Currency Revolving Loan shall be denominated in an Approved Currency as requested by the Borrower. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Approved Currency Revolving Loans.

(c) Subject to the terms and conditions set forth herein, the Borrower and each Dollar Lender which has Dollar Revolving Loans outstanding at such time agree that at 9:00 a.m., New York City time, on the Commitment Expiration Date, the aggregate principal amount of Dollar Revolving Loans owing to such Dollar Lender and outstanding at such time shall (unless such Dollar Revolving Loans have been declared (or have become) due and payable pursuant to this Agreement), upon written notice (or telephonic notice promptly confirmed in writing) by the Borrower to the Administrative Agent requesting such conversion, automatically convert to and thereafter constitute Dollar Term Loans owing to such Dollar Lender hereunder. The Dollar Term Loans of each Dollar Lender shall (i) be maintained in Dollars and (ii) not exceed in initial Principal Amount for such Dollar Lender an amount which equals the total Principal Amount of Dollar Revolving Loans owed to such Dollar Lender and outstanding at 9:00 a.m., New York City time, on the Commitment Expiration Date. Once repaid, Dollar Term Loans may not be reborrowed.

(d) Subject to the terms and conditions set forth herein, the Borrower and each Approved Currency Lender which has Approved Currency Revolving Loans outstanding at such time agree that at 9:00 a.m., New York City time, on the Commitment Expiration Date, the aggregate principal amount of Approved Currency Revolving Loans owing to such Approved Currency Lender and outstanding at such time shall (unless such Approved Currency Revolving Loans have been declared (or have become) due and payable pursuant to this Agreement), upon written notice (or telephonic notice promptly confirmed in writing) by the Borrower to the Administrative Agent requesting such conversion, automatically convert to and thereafter constitute Approved Currency Term Loans owing to such Approved Currency Lender hereunder. The Approved Currency Term Loans of each Approved Currency Lender shall (i) be maintained in the same currencies in which the related Approved Currency Revolving Loans were denominated on the Commitment Expiration Date and (ii) not exceed in initial principal amount for such Approved Currency Lender an amount which equals the total Principal Amount of Approved Currency Revolving Loans owed to such Approved Currency Lender and outstanding at 9:00 a.m., New York City time, on the Commitment Expiration Date. Once repaid, Approved Currency Term Loans may not be reborrowed.

Section 2.02. Loans and Borrowings. (a) Each Dollar Revolving Loan shall be made as part of a Borrowing consisting of Dollar Revolving Loans made by the Dollar Lenders ratably in accordance with their respective Dollar Commitments. Each Approved Currency Revolving Loan shall be made as part of a Borrowing consisting of Approved Currency Revolving Loans made by the Approved Currency Lenders ratably in accordance with their respective Approved Currency Commitments. The failure of any Lender to make any Revolving Loan required to be made by it shall not relieve any other Lender of its obligations hereunder.

(b) Subject to Section 2.11, each Borrowing shall be comprised entirely of ABR Loans or Eurocurrency Loans as the Borrower may request in accordance herewith. Each Lender at its option may make any Eurocurrency Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement.

(c) At the commencement of each Interest Period for any Eurocurrency Borrowing, such Borrowing shall be in an aggregate Principal Amount of not less than $5,000,000. At the time that each ABR Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $5,000,000; provided that an ABR Revolving Borrowing or a Eurocurrency Revolving Borrowing denominated in an Alternate Currency may be in an aggregate amount that is equal to the entire unused balance of the total Dollar Commitments or Approved Currency Commitments, as the case may be. Borrowings of more than one Type may be outstanding at the same time; provided that there shall not at any time be more than a total of ten Eurocurrency Borrowings outstanding in the aggregate for all Classes.

(d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end (i) in the case of Revolving Loans, after the Commitment Expiration Date and (ii) in the case of Term Loans, after the Maturity Date.

Section 2.03. Requests for Revolving Borrowings. To request a Revolving Borrowing, the Borrower shall notify the Administrative Agent of such request by telephone (a) in the case of a Eurocurrency Borrowing denominated in Dollars, not later than 10:00 a.m., New York City time, three Business Days before the date of the proposed Borrowing, (b) in the case of a Eurocurrency Borrowing denominated in an Alternate Currency, not later than 1:00 p.m., New York time, four Business Days before the date of the proposed Borrowing or (c) in the case of an ABR Borrowing, not later than 11:00 a.m., New York City time, on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Borrowing Request in the form of Exhibit B appropriately completed and signed by the Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02:

(i) the aggregate principal amount of the requested Borrowing;

(ii) the date of such Borrowing, which shall be a Business Day;

(iii) whether the Loans comprising such Borrowing are to be Dollar Revolving Loans or Approved Currency Revolving Loans and, in the case of Approved Currency Revolving Loans, the Approved Currency in which such Approved Currency Revolving Loans shall be denominated;

(iv) whether such Borrowing is to be an ABR Borrowing or a Eurocurrency Borrowing, provided that Alternate Currency Loans may not be incurred as Alternate Base Rate Loans;

(v) in the case of a Eurocurrency Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term "Interest Period"; and

(vi) the location and number of the Borrower's account to which funds are to be disbursed.

If no election as to the Type of Revolving Borrowing of Dollar Revolving Loans is specified, then such Revolving Borrowing of Dollar Revolving Loans shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurocurrency Revolving Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender which is required to make Revolving Loans of the Class specified in the respective Borrowing Request of the details thereof and of the amount of such Lender's Loan to be made as part of the requested Borrowing.

Section 2.04. Funding of Borrowings. (a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 12:00 noon, New York City time (or in the case of an Alternate Currency Loan, 12:00 noon, London time), to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. All such amounts shall be made available to the Administrative Agent in the relevant Approved Currency. The Administrative Agent will make

such Loans available to the Borrower by wire transfer of immediately available funds not later than 2:00 p.m. New York City time (or in the case of an Alternate Currency Loan, 2:00 p.m., London time) to the account of the Borrower designated by the Borrower in the applicable Borrowing Request.

(b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation or (ii) in the case of the Borrower, the interest rate applicable to ABR Loans. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender's Loan included in such Borrowing.

Section 2.05. Interest Elections. (a) Each Borrowing initially shall be of the Type and Class specified in the applicable Borrowing Request and, in the case of a Eurocurrency Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing of the same Class and denominated in a single Approved Currency to a different Type of such Class denominated in such Approved Currency or to continue such Borrowing and, in the case of a Eurocurrency Borrowing, may elect Interest Periods therefor, all as provided in this Section; provided that Eurocurrency Borrowings denominated in an Alternate Currency may not be converted into or maintained as ABR Borrowings. Subject to the other provisions of this Section 2.05, the Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing.

(b) To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.03 if the Borrower were requesting a Revolving Borrowing of the Type and Class resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by the Borrower.

(c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02:

(i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing);

(ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day;

(iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurocurrency Borrowing, provided that Alternate Currency Loans may not be converted into or maintained as ABR Loans; and

(iv) if the resulting Borrowing is a Eurocurrency Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period".

If any such Interest Election Request requests a Eurocurrency Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month's duration.

(d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender's portion of each resulting Borrowing.

(e) If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurocurrency Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing; provided that if such Eurocurrency Borrowing is denominated in an Alternate Currency, then such Eurocurrency Borrowing shall not convert to an ABR Borrowing but shall instead be pre-paid by the Borrower on the last day of such Interest Period. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing (i) no outstanding Borrowing may be converted to or continued as a Eurocurrency Borrowing and (ii) unless repaid, each Eurocurrency Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto; provided that if such Eurocurrency Borrowing is denominated in an Alternate Currency, then such Eurocurrency Borrowing shall not convert to an ABR Borrowing but shall instead be pre-paid by the Borrower on the last day of such Interest Period.

Section 2.06. Termination and Reduction of Commitments. (a) Unless previously terminated, the Commitments shall terminate on the Commitment Expiration Date.

(b) In addition to any other Commitment reductions hereunder, the Commitments shall be reduced on the dates and in the amounts specified in Section 2.08.

(c) The Borrower may at any time terminate, or from time to time reduce, the Dollar Commitments; provided that (i) each reduction of the Dollar Commitments shall be in an amount that is an integral multiple of $5,000,000 and not less than $5,000,000 and (ii) the Borrower shall not terminate or reduce the Dollar Commitments if, after giving effect to any concurrent prepayment of the Dollar Loans in accordance with Section 2.08, the Dollar Revolving Credit Exposures would exceed the total Dollar Commitments. Each such reduction shall be applied to the Dollar Commitments of the Dollar Lenders on a pro rata basis based on the amount of such Lenders' respective Dollar Commitments.

(d) The Borrower may at any time terminate, or from time to time reduce, Approved Currency Commitments; provided that (i) each reduction of the Approved Currency Commitments shall be in an amount that is an integral multiple of $5,000,000 and not less than $5,000,000 and (ii) the Borrower shall not terminate or reduce the Approved Currency Commitments if, after giving effect to any concurrent prepayment of the Approved Currency Loans in accordance with Section 2.08, the Approved Currency Revolving Credit Exposures would exceed the total Approved Currency Commitments. Each such reduction shall be applied to the Approved Currency Commitments of the Approved Currency Lenders on a pro rata basis based on the amount of such Lenders' respective Approved Currency Commitments.

(e) The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Commitments under paragraph (c) or (d) of this Section at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section shall be irrevocable; provided that a notice of termination of Commitments delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of any Commitments shall be permanent. Each reduction of the respective Commitments shall be made ratably among the Lenders in accordance with their respective Commitments.

Section 2.07. Repayment of Loans; Evidence of Debt. (a) The Borrower hereby unconditionally promises to pay (i) in the case of any Revolving Loans which are not elected to be converted to Term Loans by the Borrower pursuant to Section 2.01(c) or 2.01(d), to the Administrative Agent for the account of each Lender with any such Revolving Loans outstanding the then unpaid principal amount of all such Revolving Loans on the Commitment Expiration Date and (ii) in the case of any Term Loans, to the Administrative Agent for the account of each Lender with any outstanding Term Loans the then unpaid principal amount of all such Term Loans on the Maturity Date.

(b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.

(c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Class and Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof.

(d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement.

(e) Any Lender may request that Loans made by it be evidenced by a promissory note. In such event, the Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 9.04) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns).

Section 2.08. Prepayment of Loans. (a) The Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, without premium or penalty, except as provided in Section 2.13, subject to prior notice in accordance with paragraph (b) of this Section.

(b) The Borrower shall notify the Administrative Agent by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of prepayment of a Eurocurrency Borrowing denominated in Dollars, not later than 11:00 a.m., New York City time, three Business Days before the date of prepayment, (ii) in the case of any prepayment of a Eurocurrency Borrowing denominated in an Alternate Currency, not later than 11:00 a.m. London time, three Business Days before the date of prepayment, or (iii) in the case of prepayment of an ABR Revolving Borrowing, not later than 11:00 a.m., New York City time, one Business Day before the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date, the Borrowing or Borrowings which are to be prepaid and the currency in which such Borrowing or Borrowings are denominated and the principal amount of each Borrowing or portion thereof to be prepaid; provided that, if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments as contemplated by Section 2.06, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.06. Promptly following receipt of any such notice relating to a Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Borrowing shall be in an amount that would be permitted in the case of an advance of a Revolving Borrowing of the same Type and Class as provided in Section 2.02. Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing of the respective Class. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.10. Each prepayment of Term Loans pursuant to

Section 2.08(a) shall be applied to reduce the then remaining Scheduled Term Loan Repayments in direct order of maturity.

(c) If on any date, the aggregate outstanding Principal Amount of Dollar Revolving Loans exceeds the sum of the Dollar Commitments as then in effect, the Borrower shall repay on such day the outstanding Dollar Revolving Loans in an aggregate Principal Amount equal to such excess.

(d) If on any date (including, without limitation, any date on which Dollar Equivalents are determined pursuant to Section 9.14), the aggregate outstanding Principal Amount of Approved Currency Revolving Loans exceeds 105% of the sum of the Approved Currency Commitments as then in effect, the Borrower shall repay on such day the outstanding Approved Currency Revolving Loans in an aggregate Principal Amount such that the aggregate Principal Amount of the Approved Currency Revolving Loans does not exceed the total Approved Currency Commitments at such time.

(e) If on any date (including, without limitation, any date on which Dollar Equivalents are determined pursuant to Section 9.14) the aggregate Principal Amount of Approved Currency Term Loans exceeds 105% of the Initial Approved Currency Commitment Amount, then the Borrower shall repay Approved Currency Term Loans in an aggregate amount equal to the amount by which the aggregate Principal Amount of Approved Currency Term Loans exceeds the Initial Approved Currency Commitment Amount.

(f) In addition to any other mandatory repayments or commitment reductions provided herein, on each date on or after the Effective Date on which the Borrower or any of its Subsidiaries receives any cash proceeds from any issuance of public debt by the Borrower or any of its Subsidiaries in a capital markets transaction, an amount equal to 50% of the Net Cash Proceeds of the respective issuance of public debt shall be applied as a mandatory Commitment reduction or repayment in accordance with the immediately succeeding sentence. Each amount required to be applied pursuant to this Section 2.08(f) shall be applied (i) if prior to the Commitment Expiration Date, as a reduction to the Commitments in accordance with the immediately succeeding sentence and (ii) if on or after the Commitment Expiration Date, as a mandatory repayment of outstanding Term Loans in accordance with the second succeeding sentence. Any such reduction to the Commitments pursuant to this Section 2.08(f) shall be applied to the Dollar Revolving Commitments and the Approved Currency Commitments as directed by the Borrower in writing to the Administrative Agent. Any such prepayment of the Term Loans pursuant to this Section 2.08 (f) shall be applied to the Dollar Term Loans and the Approved Currency Term Loans, with (i) each such Class of Term Loans to receive its Relevant Repayment Percentage of such prepayment, (ii) Approved Currency Term Loans denominated in a particular currency to receive their portion of such prepayment based on the relative Principal Amount of each denomination of Approved Currency Term Loans and (iii) the Dollar Term Loans of the Dollar Lenders and the Approved Currency Term Loans of the Approved Currency Lenders to be prepaid on a pro rata basis based on such Lenders' respective Principal Amount of Dollar Term Loans and various Principal Amounts of Approved Currency Term Loans denominated in the relevant currencies, as the case may be. The amount of each principal repayment of each outstanding Dollar Term Loan and Approved Currency Term Loan made as required by this Section 2.08(f) shall be applied to reduce the then remaining Scheduled Term

Loan Repayments of such Class of Term Loans on a pro rata basis (based upon the then remaining principal amounts of such Scheduled Term Loan Repayment after giving effect to all prior reductions thereto).

(g) In addition to any other mandatory repayments and prepayments hereunder, on each date set forth below, the Borrower shall be required to repay that principal amount of Dollar Term Loans (applied to the Dollar Term Loans of each Dollar Lender on a pro rata basis based on the amount of their respective Dollar Term Loans then outstanding), to the extent then outstanding, equal to the initial principal amount of the Dollar Revolving Loans converted to Dollar Term Loans on the Commitment Expiration Date multiplied by the percentage set forth opposite each such date below (each such repayment, as the same may be reduced as provided in Sections 2.08 (b) and (f), a "Dollar Scheduled Term Loan Repayment"):

Dollar Scheduled Repayment Date	Percentage
September 30, 2005	16.66	%
March 31, 2006	16.67	%
Maturity Date	66.67	%

(h) In addition to any other mandatory repayments and prepayments hereunder, on each date set forth below, the Borrower shall be required to repay that principal amount of Approved Currency Term Loans (with Approved Currency Term Loans denominated in a particular currency to receive a ratable share of such mandatory repayment based on the relative Principal Amount of each denomination of Approved Currency Loans and the Approved Currency Term Loans of the Approved Currency Lenders to receive their pro rata portion of such mandatory repayment based on such Lenders' Principal Amounts of Approved Currency Term Loans), to the extent then outstanding, equal to the initial principal amount of the Approved Currency Revolving Loans converted to Approved Currency Term Loans on the Commitment Expiration Date multiplied by the percentage set forth opposite each such date below (each such repayment, as the same may be reduced as provided in Sections 2.08 (b) and (f), an "Approved Currency Scheduled Term Loan Repayment"):

Approved Currency Scheduled Repayment Date	Percentage
September 30, 2005	16.66	%
March 31, 2006	16.67	%
Maturity Date	66.67	%

(i) Notwithstanding the foregoing provisions of this Section 2.08 (other than Sections 2.08(a), (b), (g) and (h), which Sections shall not have the benefits of this sentence), if at any time the mandatory repayment of Loans pursuant to this Section 2.08 would result in the Borrower incurring breakage costs under Section 2.13 as a result of Eurocurrency Loans being repaid other than on the last day of an Interest Period applicable hereto (any such Eurocurrency

Loans, "Affected Loans"), the Borrower may elect, by written notice to the Administrative Agent, to have the provisions of the following sentence be applicable so long as no Default or Event of Default then exists. At the time any Affected Loans are otherwise required to be prepaid, the Borrower may elect to deposit 100% (or such lesser percentage elected by the Borrower as not being repaid) of the principal amounts that otherwise would have been paid in respect of the Affected Loans with the Administrative Agent to be held as security for the obligations of the Borrower hereunder pursuant to a cash collateral agreement to be entered into in form and substance satisfactory to the Administrative Agent and shall provide for investments of such deposits as directed by the Borrower and satisfactory to the Administrative Agent, with such cash collateral to be released from such cash collateral account (and applied to repay the principal amount of such Eurocurrency Loans) upon each occurrence thereafter of the last day of an Interest Period applicable to such Eurocurrency Loans (or such earlier date or dates as shall be requested by the Borrower, with the amount to be so released and applied on the last day of each Interest Period to be the amount of such Eurocurrency Loans to which such Interest Period applies (or, if less, the amount remaining in such cash collateral account); provided that (i) interest in respect of such Affected Loans shall continue to accrue thereon at the rate provided hereunder until such Affected Loans have been repaid in full and (ii) at any time while an Event of Default has occurred and is continuing or upon written notice from the Required Lenders, the Required Lenders may direct the Administrative Agent (in which case the Administrative Agent shall, and is hereby authorized by the Borrower to, follow said directions) to apply any or all proceeds then on deposit in such collateral account to the payment of such Affected Loans. All risk of loss in respect of investments made as contemplated in this Section 2.08(i) shall be on the Borrower. Under no circumstances shall the Administrative Agent be liable or accountable to the Borrower or any other Person for any decrease in the value of the cash collateral account or for any loss resulting from the sale of any investment so made.

Section 2.09. Fees. (a) The Borrower agrees to pay to the Administrative Agent for the account of each Lender a commitment fee, which shall accrue at the Applicable Commitment Fee Rate on the daily amount of the unutilized Commitment of such Lender during the period from and including the Effective Date to but excluding the Commitment Expiration Date. Accrued commitment fees shall be payable in arrears on the last day of March, June, September and December of each year and on the Commitment Expiration Date commencing on the first such date to occur after the date hereof. All commitment fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day).

(b) The Borrower agrees to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times separately agreed upon between the Borrower and the Administrative Agent.

(c) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, in the case of commitment fees to the Lenders. Fees paid shall not be refundable under any circumstances.

Section 2.10. Interest. (a) The Loans comprising each ABR Borrowing shall bear interest at the Alternate Base Rate plus the Applicable Rate.

(b) The Loans comprising each Eurocurrency Borrowing shall bear interest, at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate.

(c) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section or (ii) in the case of any other amount, 2% plus the rate applicable to ABR Loans as provided in paragraph (a) of this Section.

(d) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and, (x) in the case of Revolving Loans, on the Commitment Expiration Date and (y) in the case of Term Loans, on the Maturity Date; provided that (i) interest accrued pursuant to paragraph (c) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Revolving Loan prior to the Commitment Expiration Date), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurocurrency Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion.

(e) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate or Adjusted LIBO Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error.

Section 2.11. Alternate Rate of Interest. If prior to the commencement of any Interest Period for a Eurocurrency Borrowing:

(a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate for such Interest Period;

(b) the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period; or

(c) the Administrative Agent determines (which determination shall be conclusive absent manifest error) at any time that any Alternate Currency is not available in sufficient amounts, as determined in good faith by the Administrative Agent, to fund any Borrowing of Loans denominated in such Alternate Currency;

then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (A)(i) in the case of clauses (a) and (b) above (I) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurocurrency Borrowing denominated in Dollars shall be ineffective and (II) the Adjusted LIBO Rate for any such Eurocurrency Borrowing denominated in an Alternate Currency shall be determined in accordance with the last sentence of the definition of LIBO Rate and (ii) if any Borrowing Request requests a Eurocurrency Borrowing denominated in Dollars, such Borrowing shall be made as an ABR Borrowing provided that if the circumstances giving rise to such notice affect only one Type of Borrowings, then the other Type of Borrowings shall be permitted and (B) in the case of clause (c) above, Loans in the affected Alternate Currency shall no longer be available and any Borrowing request given by the Borrower with respect to such Alternate Currency Loans which have not yet been incurred shall be deemed rescinded by the Borrower.

Section 2.12. Increased Costs. (a) If any Change in Law shall:

(i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate); or

(ii) impose on any Lender or the London interbank market any other condition affecting this Agreement or Eurocurrency Loans made by such Lender;

and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurocurrency Loan (or of maintaining its obligation to make any such Loan) or to increase the cost to such Lender or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or otherwise), then the Borrower will pay to such Lender, as the case may be, such additional amount or amounts as will compensate such Lender, as the case may be, for such additional costs incurred or reduction suffered.

(b) If any Lender determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's capital or on the capital of such Lender's holding company, if any, as a consequence of this Agreement or the Loans made by such Lender, to a level below that which such Lender or such Lender's holding company could have achieved but for such Change in Law (taking into consideration such Lender's policies and the policies of such Lender's holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender's holding company for any such reduction suffered.

(c) In the event that any Lender shall in good faith determine (which determination shall, absent manifest error, be final and conclusive and binding on all parties hereto) at any time that such Lender has incurred Additional Costs in respect of any Loans then such Lender shall promptly notify the Borrower and the Administrative Agent in writing specifying the additional amounts required to indemnify such Lender against such Additional

Costs (such written notice to provide in reasonable detail a computation of such additional amounts) and the Borrower shall, and shall be obligated to, pay to such Lender such specified amounts as additional interest at the time that the Borrower is otherwise required to pay interest in respect of such Loan or, if later, on written demand therefor by such Lender.

(d) A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof.

(e) Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender pursuant to this Section for any increased costs or reductions incurred more than 90 days prior to the date that such Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender's intention to claim compensation therefor; provided , further , that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 90-day period referred to above shall be extended to include the period of retroactive effect thereof.

Section 2.13. Break Funding Payments. In the event of (a) the payment of any principal of any Eurocurrency Loan other than on the last day of an Interest Period applicable thereto (including as a result of a mandatory prepayment under Section 2.08 or an Event of Default), (b) the conversion of any Eurocurrency Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Eurocurrency Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under Section 2.08(b) and is revoked in accordance therewith), or (d) the assignment of any Eurocurrency Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 2.16, then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a Eurocurrency Loan, such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the eurodollar market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof.

Section 2.14. Taxes. (a) Any and all payments by or on account of any obligation of the Borrower hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if the Borrower shall be required to deduct

any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent or Lender (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.

(b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.

(c) The Borrower shall indemnify the Administrative Agent and each Lender within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes that the Borrower failed to deduct or withhold and that were paid by the Administrative Agent or such Lender on or with respect to any payment by or on account of any obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.

(d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.

(e) Each Foreign Lender shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrower (if any), or will comply with such other requirements, if any, as is currently applicable, as will permit payments under this Agreement to be made without withholding or at a reduced rate; provided , however , that the Borrower shall have furnished to each such Lender in a reasonably timely manner copies of such documentation and notice of such requirements together with applicable instructions; provided , further , that no such Lender shall have any obligation to provide such documentation or comply with such requirements if it would result in a material economic, legal or regulatory disadvantage to any such Lender.

(f) If the Administrative Agent or a Lender determines, in its sole discretion, that it has received a refund of any Taxes or Other Taxes as to which it has been indemnified by the Borrower or with respect to which the Borrower has paid additional amounts pursuant to this Section 2.14, it shall pay over such refund to the Borrower (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower under this Section 2.14 with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of the Administrative Agent or such Lender and without interest (other than any interest paid by

the relevant Governmental Authority with respect to such refund); provided, that the Borrower, upon the request of the Administrative Agent or such Lender, agrees to repay the amount paid over to the Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Administrative Agent or such Lender in the event the Administrative Agent or such Lender is required to repay such refund to such Governmental Authority. This Section shall not be construed to require the Administrative Agent or any Lender to make available its tax returns (or any other information relating to its taxes which it deems confidential) to the Borrower or any other Person.

(g) Any Lender that is not a Lender as of the Effective Date shall not be entitled to any greater payment under this Section 2.14 than such Lender's assignor could have been entitled to absent such assignment except to the extent that the entitlement to a greater payment resulted from a Change in Law.

Section 2.15. Payments Generally; Pro Rata Treatment; Sharing of Set-offs. (a) The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees or of amounts payable under Section 2.12, 2.13 or 2.14, or otherwise) prior to 12:00 noon, New York City time, on the date when due, in immediately available funds, without set-off or counterclaim in (x) Dollars, if such payment is made in respect of any obligation of the Borrower under this Agreement except as otherwise provided in the immediately succeeding clause (y) and (y) the appropriate Alternate Currency, if such payment is made in respect of principal of or interest on Alternate Currency Loans. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent (i) in the case of clause (x) of the preceding sentence, at its offices at 270 Park Avenue, New York, New York and (ii) in the case of clause (y) of the preceding sentence, at its offices at J.P. Morgan Europe Limited, 125 London Wall, EC2Y 5AJ, except that payments pursuant to Sections 2.12, 2.13, 2.14 and 9.03 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension.

(b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment of principal then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties.

(c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans resulting in such Lender receiving payment of a greater proportion of the aggregate Principal Amount of its Loans and accrued interest thereon than the proportion received by any other Lender, then the

Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate Principal Amount of and accrued interest on their respective Loans; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.

(d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.

(e) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.04(b) or 2.15(d), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender's obligations under such Sections until all such unsatisfied obligations are fully paid.

Section 2.16. Mitigation Obligations; Replacement of Lenders. (a) If any Lender requests compensation under Section 2.12, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.14, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.12 or 2.14, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.

(b) If any Lender requests compensation under Section 2.12, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.14, or if any Lender defaults in its obligation to fund Loans hereunder, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) the Borrower shall have received the prior written consent of the Administrative Agent, which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.12 or payments required to be made pursuant to Section 2.14, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.

ARTICLE III

Representations and Warranties

The Borrower represents and warrants to the Lenders that:

Section 3.01. Corporate Status. Each of the Borrower and each of its Subsidiaries (i) is a duly organized and validly existing corporation or business trust or other entity in good standing under the laws of the jurisdiction of its organization and has the corporate or other organizational power and authority to own its property and assets and to transact the business in which it is engaged and presently proposes to engage, and (ii) has been duly qualified and is authorized to do business and is in good standing in all jurisdictions where it is required to be so qualified, except, in the case of this clause (ii), where the failure to be so qualified, authorized or in good standing would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.

Section 3.02. Corporate Power and Authority. The Borrower has the corporate power and authority to execute, deliver and carry out the terms and provisions of the Credit Documents and has taken all necessary corporate action to authorize the execution, delivery and performance of the Credit Documents. The Borrower has duly executed and delivered each Credit Document and each such Credit Document constitutes the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, except to the extent that enforceability thereof may be limited by applicable bankruptcy, insolvency, moratorium or similar laws affecting creditors' rights generally and general principles of equity regardless of whether enforcement is sought in a proceeding in equity or at law.

Section 3.03. No Contravention of Laws, Agreements or Organizational Documents. Neither the execution, delivery and performance by the Borrower of this Agreement or the other Credit Documents nor compliance with the terms and provisions thereof, nor the consummation of the transactions contemplated therein, (i) will contravene any applicable provision of any law, statute, rule, regulation, order, writ, injunction or decree of any court or governmental instrumentality, (ii) will conflict or be inconsistent with or result in any breach of any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the property or assets of the Borrower or any of its Subsidiaries pursuant to the terms of, any indenture, mortgage, deed of trust, loan agreement, credit agreement or any other material instrument to which the Borrower or any of its Subsidiaries is a party or by which it or any of its property or assets are bound or to which it may be subject or (iii) will violate any provision of the certificate of incorporation, by-laws or other organizational documents of the Borrower or any of its Subsidiaries.

Section 3.04. Litigation and Contingent Liabilities. There are no actions, suits or proceedings pending or threatened in writing involving the Borrower or any of its Subsidiaries (including, without limitation, with respect to this Agreement or any other Credit Document) that have had, or would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.

Section 3.05. Use of Proceeds; Margin Regulations. (a) All proceeds of the Loans shall be utilized for the general corporate and working capital purposes of the Borrower and its Subsidiaries.

(b) Neither the making of any Loan hereunder, nor the use of the proceeds thereof, will violate or be inconsistent with the provisions of Regulation T, U or X and no part of the proceeds of any Loan will be used to purchase or carry any Margin Stock or to extend credit for the purpose of purchasing or carrying any Margin Stock.

Section 3.06. Approvals. Any order, consent, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, any foreign or domestic governmental or public body or authority, or any subdivision thereof, which is required to authorize or is required in connection with (i) the execution, delivery and performance of any Credit Document or (ii) the legality, validity, binding effect or enforceability of any Credit Document, has been obtained.

Section 3.07. Investment Company Act. The Borrower is not an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended.

Section 3.08. Public Utility Holding Company Act. The Borrower is not a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," within the meaning of the Public Utility Holding Company Act of 1935, as amended.

Section 3.09. True and Complete Disclosure; Projections and Assumptions. All factual information (taken as a whole) heretofore or contemporaneously furnished by the Borrower or any of its Subsidiaries to the Administrative Agent or any Lender in writing (including, without limitation, all information contained in the Credit Documents) for purposes of or in connection with this Agreement or any transaction contemplated herein is, and all other factual information (taken as a whole with all other such information theretofore or contemporaneously furnished) hereafter furnished by any such Persons in writing to the Administrative Agent will be, true and accurate in all material respects on the date as of which such information is dated and not incomplete by omitting to state any material fact necessary to make such information (taken as a whole with all other such information theretofore or contemporaneously furnished) not misleading at such time in light of the circumstances under which such information was provided; provided that, with respect to projections the Borrower represents only that the projections contained in such materials are based on good faith estimates and assumptions believed by the Borrower to be reasonable and attainable at the time made, it being recognized by the Lenders that such projections as to future events are not to be viewed as facts and are subject to significant uncertainties and contingencies many of which are beyond the Borrower's control and that actual results during the period or periods covered by any such projections may differ from the projected results.

Section 3.10. Financial Condition; Financial Statements. (a) The consolidated balance sheet of the Borrower for the fiscal year ended December 31, 2002 and the related consolidated statements of income, shareholders' equity and cash flows, reported on by PricewaterhouseCoopers LLP, copies of which have been delivered to each of the Lenders, and the unaudited consolidated balance sheet of the Borrower for its fiscal quarter ended June 30, 2003 and the related consolidated statements of income, shareholders' equity and cash flows, copies of which have been delivered to each of the Lenders, fairly present in all material respects, in each case in conformity with GAAP, consistently applied, the consolidated financial position of the Borrower and its Subsidiaries as of such dates and their consolidated results of operations and cash flows for such periods stated (subject, in the case of the aforementioned quarterly financial statement to normal year-end audit adjustments and the absence of full footnote disclosure).

(b) Since December 31, 2002, nothing has occurred which has had, or would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.

(c) Except (i) for the Loans and (ii) as set forth in the unaudited consolidated balance sheet of the Borrower for its fiscal quarter ended June 30, 2003, on the Effective Date there are no material liabilities of the Borrower and its Subsidiaries.

(d) On and as of the Effective Date, on a pro forma basis after giving effect to the Transaction, (x) the fair valuation of all of the tangible and intangible assets of the Borrower (on a consolidated basis) will exceed its debts, (y) the Borrower will not have incurred or intended to incur debts beyond its ability to pay such debts as such debts mature and (z) the Borrower will not have unreasonably small capital with which to conduct its business as conducted on the Effective Date. For purposes of this Section 3.10, "debt" means any liability on a claim, and "claim" means any (i) right to payment whether or not such a right is reduced to

judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured; or (ii) right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured.

Section 3.11. Tax Returns and Payments. The Borrower and its Subsidiaries (i) have timely filed or caused to be timely filed with the appropriate taxing authority (taking into account any applicable extension within which to file) all material income and other material tax returns (including any statements, forms and reports), domestic and foreign, required to be filed by the Borrower and its Subsidiaries, and (ii) have timely paid or caused to have timely paid all material taxes payable by them which have become due and assessments which have become due, except for those contested in good faith and adequately disclosed and for which adequate reserves have been established in accordance with GAAP. There is no action, suit, proceeding, investigation, audit or claim now pending or, to the best knowledge of the Borrower and its Subsidiaries, proposed or threatened by any authority regarding any income taxes or any other material taxes relating to the Borrower or any of its Subsidiaries. Neither the Borrower nor any of its Subsidiaries has entered into an agreement or waiver or been requested to enter into an agreement or waiver extending any statute of limitations relating to the payment or collection of taxes of the Borrower or any of its Subsidiaries. No tax Liens have been filed and no claims are pending or, to the best knowledge of the Borrower or any of its Subsidiaries, proposed or threatened with respect to any taxes, fees or other charges for any taxable period.

Section 3.12. Compliance with ERISA. (a) Except as could not reasonably be expected to result, individually or in the aggregate, in a Material Adverse Effect, the Borrower and its Subsidiaries and ERISA Affiliates (i) have fulfilled their respective obligations under the minimum funding standards of ERISA and the Code with respect to each Plan and are in compliance with the applicable provisions of ERISA and the Code, and (ii) have not incurred any liability to the PBGC or any Plan or Multiemployer Plan (other than to make contributions in the ordinary course of business).

(b) Except as could not reasonably be expected to result, individually or in the aggregate, in a Material Adverse Effect, (i) each Foreign Pension Plan has been maintained in compliance with its terms and with the requirements of any and all applicable laws, statutes, rules, regulations and orders and has been maintained, where required, in good standing with applicable regulatory authorities, (ii) all contributions required to be made with respect to a Foreign Pension Plan have been timely made, (iii) neither the Borrower nor any of its Subsidiaries has incurred any obligation in connection with the termination of, or withdrawal from, any Foreign Pension Plan and (iv) the present value of the accrued benefit liabilities (whether or not vested) under each Foreign Pension Plan that is required to be funded, determined as of the end of the Borrower's most recently ended fiscal year on the basis of actuarial assumptions, each of which is reasonable, did not exceed the current value of the assets of such Foreign Pension Plan allocable to such benefit liabilities.

Section 3.13. Subsidiaries. (a) Set forth on Schedule 3.13 is a complete and correct list of all of the Subsidiaries of the Borrower as of the Effective Date, together with, for each such Subsidiary, (i) the jurisdiction of organization of such Subsidiary, (ii) each Person

holding direct ownership interests in such Subsidiary and (iii) the percentage of ownership of such Subsidiary represented by such ownership interests. Except as disclosed on Schedule 3.13, each of the Borrower and its Subsidiaries owns, free and clear of Liens, and has the unencumbered right to vote, all outstanding ownership interests in each Person shown to be held by it on Schedule 3.13.

(b) As of the Effective Date, there are no restrictions on the Borrower or any of its Subsidiaries which prohibit or otherwise restrict the transfer of cash or other assets from any Subsidiary of the Borrower to the Borrower, other than (i) prohibitions or restrictions existing under or by reason of this Agreement or the other Credit Documents, (ii) prohibitions or restrictions existing under or by reason of the credit documents relating to the Amended and Restated Letter of Credit and Reimbursement Agreement, dated as of August 12, 2003, by and among Arch Reinsurance Ltd., Arch Reinsurance Company, Alternative Re Limited and Arch Insurance Company, the lenders from time to time party thereto and Fleet National Bank, as agent and issuing lender, as amended by Amendment No.1, dated as of August 20, 2003 (the " Existing LC Facility "), (iii) prohibitions or restrictions existing under or by reason of Legal Requirements, and (iv) other prohibitions or restrictions which, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.

Section 3.14. Capitalization. As of the Effective Date, the authorized capital stock of the Borrower consists of (i) 200,000,000 common shares, $.01 par value per share, 28,034,809 of which shares are issued and outstanding at June 30, 2003 and, (ii) 50,000,000 preference shares, $.01 par value per share, of which 38,844,665 are issued and outstanding Series A Convertible Preference Shares at June 30, 2003. As of the Effective Date, none of the Borrower's Subsidiaries has outstanding any securities convertible into or exchangeable for its capital stock or outstanding any rights to subscribe for or to purchase, or any options for the purchase of, or any agreements providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, its capital stock except for options, warrants and grants outstanding in the aggregate amounts set forth on Schedule 3.14.

Section 3.15. Indebtedness. The Borrower and its Subsidiaries do not have any Indebtedness on the Effective Date other than (i) the Loans, and (ii) the Indebtedness listed on Schedule 3.15.

Section 3.16. Compliance with Statutes, etc. The Borrower and each of its Subsidiaries is in compliance with all applicable statutes, regulations, rules and orders of, and all applicable restrictions imposed by, and has filed or otherwise provided all material reports, data, registrations, filings, applications and other information required to be filed with or otherwise provided to, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property (including compliance with all applicable environmental laws), except where the failure to comply or file or otherwise provide would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect. All required regulatory approvals are in full force and effect on the date hereof, except where the failure of such approvals to be in full force and effect would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.

Section 3.17. Insurance Licenses. Schedule 3.17 lists with respect to each Regulated Insurance Company, as of the Effective Date, all of the jurisdictions in which such Regulated Insurance Company holds licenses (including, without limitation, licenses or certificates of authority from Applicable Insurance Regulatory Authorities), permits or authorizations to transact insurance and reinsurance business (collectively, the "Insurance Licenses"), and indicates the type or types of insurance in which each such Regulated Insurance Company is permitted to be engaged with respect to each Insurance License therein listed. There is (i) no such Insurance License that is the subject of a proceeding for suspension, revocation or limitation or any similar proceedings, (ii) no sustainable basis for such a suspension, revocation or limitation, and (iii) no such suspension, revocation or limitation threatened by any Applicable Insurance Regulatory Authority, that, in each instance under (i), (ii) and (iii) above, has had, or would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect. No Regulated Insurance Company transacts any insurance business, directly or indirectly, in any jurisdiction other than those listed on Schedule 3.17, where such business requires any Insurance License of an Applicable Insurance Regulatory Authority or such jurisdiction.

Section 3.18. Insurance Business. All insurance policies issued by any Regulated Insurance Company are, to the extent required under applicable law, on forms approved by the insurance regulatory authorities of the jurisdiction where issued or have been filed with and not objected to by such authorities within the period provided for objection, except for those forms with respect to which a failure to obtain such approval or make such a filing without it being objected to, would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.

ARTICLE IV

Conditions

Section 4.01. Effective Date. The obligations of the Lenders to make Loans hereunder shall not become effective until the date (the " Effective Date ") on which each of the following conditions is satisfied (or waived in accordance with Section 9.02):

(a) On the Effective Date, (i) each of the Borrower, the Administrative Agent and each of the Lenders shall have signed a copy hereof (whether the same or different copies) and shall have delivered the same to the Administrative Agent in accordance with Section 9.01(a) or, in the case of the Lenders, shall have given to the Administrative Agent telephonic (confirmed in writing), written or facsimile transmission notice (actually received) in accordance with Section 9.01(a) that the same has been signed and mailed to the Administrative Agent; and (ii) there shall have been delivered to the Administrative Agent for the account of each Lender that has requested the same pursuant to Section 2.07(e) the appropriate promissory note or promissory notes, executed by the Borrower, in each case, in the amount, maturity and as otherwise provided herein.

(b) On the Effective Date, the Administrative Agent shall have received (i) an opinion, in form and substance reasonably satisfactory to the Administrative Agent,

addressed to the Administrative Agent and each of the Lenders and dated the Effective Date, from Cahill, Gordon & Reindel LLP, special U.S. counsel to the Borrower, which opinion shall cover the matters contained in Exhibit C-1 hereto and (ii) an opinion, in form and substance reasonably satisfactory to the Administrative Agent, addressed to the Administrative Agent and each of the Lenders and dated the Effective Date, from Conyers, Dill & Pearman, special Bermuda counsel to the Borrower, which opinion shall cover the matters covered in Exhibit C-2 hereto.

(c) (i) On the Effective Date, the Administrative Agent shall have received, from the Borrower, a certificate, dated the Effective Date, signed by the President or any Vice President of the Borrower, and attested to by the Secretary or any Assistant Secretary of the Borrower, in the form of Exhibit D hereto with appropriate insertions and deletions, together with (x) copies of its certificate of incorporation, by-laws or other organizational documents and (y) the resolutions relating to the Credit Documents which shall be satisfactory to the Administrative Agent.

(ii) On or prior to the Effective Date, all corporate and legal proceedings and all instruments and agreements in connection with the transactions contemplated by this Agreement and the other Credit Documents shall be reasonably satisfactory in form and substance to the Administrative Agent, and the Administrative Agent shall have received all information and copies of all certificates, documents and papers, including certificates of existence or good standing certificates, as applicable, and any other records of corporate proceedings and governmental approvals, if any, which the Administrative Agent reasonably may have requested in connection therewith, such documents and papers where appropriate to be certified by proper corporate or governmental authorities.

(d) Since December 31, 2002, nothing shall have occurred or become known to the Administrative Agent or the Required Lenders which has had, or would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.

(e) On the Effective Date, no actions, suits or proceedings by any entity (private or governmental) shall be pending against the Borrower or any of its Subsidiaries (i) with respect to this Agreement, any other Credit Document, the Transaction or any of the transactions contemplated hereby or thereby or (ii) which has had, or would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.

(f) On the Effective Date, all governmental and third party approvals, permits and licenses required to be obtained in connection with the Transaction on or prior to the Effective Date shall have been obtained and remain in full force and effect.

(g) On the Effective Date, the Borrower and its Subsidiaries shall have no outstanding preferred stock or Indebtedness except (x) the Loans, and (y) preferred stock or Indebtedness set forth on Schedule 3.15.

(h) On the Effective Date, there shall exist no Default or Event of Default, and all representations and warranties made by the Borrower contained herein or in any other

Credit Document shall be true and correct in all material respects (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date).

(i) On the Effective Date, each Regulated Insurance Company (other than the Designated Subsidiaries) shall have an A.M. Best financial strength rating of at least "A-".

(j) On the Effective Date, the Borrower shall have paid the Administrative Agent and the Lenders all fees, reasonable out-of-pocket expenses (including, without limitation, reasonable legal fees and expenses of the Administrative Agent) and other compensation contemplated by this Agreement and the other Credit Documents, agreed upon by such parties to be paid on or prior to the Effective Date.

The Administrative Agent shall notify the Borrower and the Lenders of the Effective Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 9.02) at or prior to 5:00 p.m., New York City time, on September 30, 2003 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time).

Section 4.02. Each Credit Event. The obligation of each Lender to make each Loan is subject to the satisfaction of the following conditions:

(a) The Effective Date shall have occurred.

(b) (i) There shall exist no Default or Event of Default and (ii) all representations and warranties contained herein or in the other Credit Documents shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on the date of the making of such Loan (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date).

(c) The Administrative Agent shall have received a Borrowing Request meeting the requirements of Section 2.03 with respect to each incurrence of Loans.

Each incurrence of a Loan shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section.

ARTICLE V

Affirmative Covenants

Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full, the Borrower

covenants and agrees with the Lenders that:

Section 5.01. Information Covenants. The Borrower will furnish to the Administrative Agent (for distribution to each Lender):

(a) Annual Financial Statements . As soon as available and in any event within 90 days after the close of each fiscal year of the Borrower, the consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal year and the related consolidated statements of income, changes in shareholders' equity and cash flows of the Borrower and its Subsidiaries for such fiscal year, setting forth in comparative form the consolidated figures for the previous fiscal year, all in reasonable detail and accompanied by a report thereon of PricewaterhouseCoopers LLP or other independent public accountants of recognized national standing selected by the Borrower, which report shall state that such consolidated financial statements present fairly in all material respects the consolidated financial position of the Borrower and its Subsidiaries as at the dates indicated and their consolidated results of operations and cash flows for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except as otherwise specified in such report; provided any exceptions or qualifications thereto must be acceptable to the Required Lenders) and that the audit by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards.

(b) Quarterly Financial Statements . As soon as available and in any event within 60 days after the close of each of the first three quarterly accounting periods in each fiscal year of the Borrower, consolidated balance sheets of the Borrower and its Subsidiaries as at the end of such period and the related consolidated statements of income, changes in shareholders' equity and cash flows of the Borrower and its Subsidiaries for such period and (in the case of the second and third quarterly periods) for the period from the beginning of the current fiscal year to the end of such quarterly period, setting forth in each case in comparative form the consolidated figures for the corresponding periods of the previous fiscal year, all in reasonable detail and certified by the chief financial officer of the Borrower as presenting fairly in all material respects, in accordance with GAAP (except as specifically set forth therein; provided any exceptions or qualifications thereto must be acceptable to the Administrative Agent) on a basis consistent with such prior fiscal periods, the information contained therein, subject to changes resulting from normal year-end audit adjustments and the absence of full footnote disclosure.

(c) Officer's Certificates . At the time of the delivery of the financial statements provided for in Sections 5.01(a) and 5.01(b), a certificate of the chief financial officer of the Borrower to the effect that no Default or Event of Default exists or, if any Default or Event of Default does exist, specifying the nature and extent thereof, which certificate shall set forth the calculations required to establish whether the Borrower and its Subsidiaries were in compliance with the provisions of Sections 6.03, 6.09 and 6.10, as at the end of such fiscal year or quarter, as the case may be.

(d) Notice of Default or Litigation . (x) Within five Business Days after the Borrower becomes aware of the occurrence of any Default and/or any event or condition constituting, or which would reasonably be expected to have, a Material Adverse Effect, a certificate of a Financial Officer of the Borrower setting forth the details thereof and the actions which the Borrower is taking or proposes to take with respect thereto and (y) promptly after the Borrower knows of the commencement thereof, notice of any litigation, dispute or proceeding involving a claim against the Borrower and/or any Subsidiary which claim would reasonably be expected to have a Material Adverse Effect.

(e) Other Statements and Reports . Promptly upon the mailing thereof to the security holders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed.

(f) SEC Filings . Promptly upon the filing thereof, copies of (or, to the extent same is publicly available via the SEC's "EDGAR" filing system, written notification of the filing of) all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and annual, quarterly or monthly reports which the Borrower shall have filed with the SEC or any national securities exchange.

(g) Insurance Reports and Filings . (i) Promptly after the filing thereof, a copy of each Statutory Statement filed by each Regulated Insurance Company.

(ii) Promptly following the delivery or receipt, as the case may be, by any Regulated Insurance Company or any of their respective Subsidiaries, copies of (a) each material registration, filing or submission made by or on behalf of any Regulated Insurance Company with any Applicable Insurance Regulatory Authority, except for policy form or rate filings, (b) each material examination and/or audit report submitted to any Regulated Insurance Company by any Applicable Insurance Regulatory Authority, (c) all material information which the Lenders may from time to time request with respect to the nature or status of any material deficiencies or violations reflected in any examination report or other similar report, and (d) each material report, order, direction, instruction, approval, authorization, license or other notice which the Borrower or any Regulated Insurance Company may at any time receive from any Applicable Insurance Regulatory Authority. For the purpose of this clause (ii) only, determinations of "material" shall be made by the Borrower in good faith.

(iii) As soon as available and in any event within 120 days after the end of each fiscal year of the Borrower, a report by an independent actuarial consulting firm of recognized national standing reviewing the adequacy of loss and loss adjustment expense reserves as at the end of the last fiscal year of the Borrower and its Subsidiaries on a consolidated basis, determined in accordance with SAP and stating that the Regulated Insurance Companies have maintained adequate reserves, it being agreed that in each case such independent firm will be provided access to or copies of all relevant valuations relating to the insurance business of each such Regulated Insurance Company in the possession of or available to the Borrower or its Subsidiaries.

(iv) Promptly following notification thereof from a Governmental Authority, notification of the suspension, limitation, termination or non-renewal of, or the taking of any other materially adverse action in respect of, any Insurance License.

(h) Other Information . With reasonable promptness, such other information or existing documents (financial or otherwise) as the Administrative Agent or any Lender may reasonably request from time to time.

Section 5.02. Books, Records and Inspections. The Borrower will (i) keep, and will cause each of its Subsidiaries to keep, proper books of record and account in which full, true and correct entries in conformity with GAAP or SAP, as applicable, shall be made of all dealings and transactions in relation to its business and activities; and (ii) subject to binding contractual confidentiality obligations of the Borrower and its Subsidiaries to third parties and to Section 9.12, permit, and will cause each of its Subsidiaries to permit, representatives of any Lender (at such Lender's expense prior to the occurrence of an Event of Default and at the Borrower's expense after an Event of Default has occurred and is continuing) to visit and inspect any of their respective properties, to examine their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants, in each case at such reasonable times and as often as may reasonably be desired. The Borrower agrees to cooperate and assist in such visits and inspections.

Section 5.03. Insurance. The Borrower will maintain, and will cause each of its Subsidiaries to maintain (either in the name of the Borrower or in the Subsidiary's own name) with financially sound and reputable insurance companies, insurance on all their property in at least such amounts and against at least such risks as are usually insured against in the same general area by companies of established repute engaged in the same or similar businesses.

Section 5.04. Payment of Taxes. The Borrower will pay and discharge, and will cause each of its Subsidiaries to pay and discharge, all income taxes and all other material taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any properties belonging to it, in each case, on a timely basis prior to the date on which penalties attach thereto, and all lawful claims which, if unpaid, might become a Lien or charge upon any properties of the Borrower or any of its Subsidiaries; provided that neither the Borrower nor any Subsidiary of the Borrower shall be required to pay any such tax, assessment, charge, levy or claim which is being contested in good faith and by proper proceedings if it has maintained adequate reserves with respect thereto in accordance with GAAP.

Section 5.05. Maintenance of Existence. The Borrower shall maintain, and shall cause each of its Subsidiaries to maintain, its existence, provided that the Borrower shall not be required to maintain the existence of any of its Subsidiaries if the Borrower shall determine in good faith that the preservation thereof is no longer desirable in the conduct of the business of the Borrower and its Subsidiaries taken as a whole. The Borrower will qualify and remain qualified, and cause each of its Subsidiaries to qualify and remain qualified, as a foreign corporation in each jurisdiction where the Borrower or such Subsidiary, as the case may be, is required to be qualified, except in those jurisdictions in which the failure to receive or retain such

qualifications would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.

Section 5.06. Compliance with Statutes, etc. The Borrower will, and will cause each Subsidiary to, comply with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property (including applicable statutes, regulations, orders and restrictions relating to environmental standards and controls) other than those the non-compliance with which would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.

Section 5.07. ERISA. Promptly after the Borrower, any of its Subsidiaries or, in the case of clauses (i) through (v) below, any of its ERISA Affiliates knows or has reason to know that any of the events or conditions specified below with respect to any Plan or Multiemployer Plan or Foreign Pension Plan has occurred or exist, a certificate of the chief financial officer of the Borrower setting forth details respecting such event or condition and the action if any, that the Borrower, such Subsidiary or such ERISA Affiliate proposes to take with respect thereto (and a copy of any report or notice required to be filed with or given to PBGC or an applicable foreign governmental agency by the Borrower, such Subsidiary or such ERISA Affiliate with respect to such event or condition):

(i) any reportable event, as defined in subsections (c)(1), (2), (5) and (6), and subsection (d)(2) of Section 4043 of ERISA and the regulations issued thereunder, with respect to a Plan;

(ii) the filing under Section 4041(c) of ERISA of a notice of intent to terminate any Plan under a distress termination or the distress termination of any Plan;

(iii) the institution by PBGC of proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Borrower, any of its Subsidiaries or any of its ERISA Affiliates of a notice from a Multiemployer Plan that such action has been taken by PBGC with respect to such Multiemployer Plan which could reasonably be expected to result in a liability to the Borrower or any of its Subsidiaries in excess of $5,000,000;

(iv) the receipt by the Borrower, any of its Subsidiaries or any of its ERISA Affiliates of notice from a Multiemployer Plan that the Borrower, any of its Subsidiaries or any of its ERISA Affiliates has incurred withdrawal liability under Section 4201 of ERISA in excess of $5,000,000 or that such Multiemployer Plan is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated under Section 4041A of ERISA whereby a deficiency or additional assessment is levied or threatened to be levied in excess of $5,000,000 against the Borrower, any of its Subsidiaries or any of its ERISA Affiliates;

(v) the institution of a proceeding by a fiduciary of any Plan or Multiemployer Plan against the Borrower, any of its Subsidiaries or any of its ERISA Affiliates to

enforce Section 515 or 4219(c)(5) of ERISA asserting liability in excess of $5,000,000, which proceeding is not dismissed within 30 days; and

(vi) that any material contribution required to be made with respect to a Foreign Pension Plan has not been timely made, or that the Borrower or any Subsidiary of the Borrower may incur any material liability pursuant to any Foreign Pension Plan (other than to make contributions in the ordinary course of business).

Section 5.08. Maintenance of Property. The Borrower shall, and will cause each of its Subsidiaries to, maintain all of their properties and assets in good condition, repair and working order, ordinary wear and tear excepted, except where failure to maintain the same would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.

Section 5.09. Maintenance of Licenses and Permits. The Borrower will, and will cause each of its Subsidiaries to, maintain all permits, licenses and consents as may be required for the conduct of its business by any state, federal or local government agency or instrumentality, except where failure to maintain the same would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.

Section 5.10. Claims Paying Ratings. The Borrower shall cause each Regulated Insurance Company (other than the Designated Subsidiaries) to maintain at all times a financial strength rating of at least "B++" from A.M. Best & Co. (or its successor); provided that any Regulated Insurance Company acquired or created after the Effective Date shall not be required to comply with this Section 5.10 until the date occurring 180 days after the date of such acquisition or creation.

Section 5.11. End of Fiscal Years; Fiscal Quarters. The Borrower will cause (i) each of its, and each of its Subsidiaries', fiscal years to end on December 31 of each year and (ii) each of its, and each of its Subsidiaries', fiscal quarters to end on dates which are consistent with a fiscal year end as described above, provided that the Borrower shall not be required to comply with the foregoing with respect to any Subsidiary of the Borrower acquired after the Effective Date having a fiscal year ending on a date other than December 31 at the time of such acquisition.

ARTICLE VI

Negative Covenants

Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder have been paid in full, the Borrower covenants and agrees with the Lenders that:

Section 6.01. Changes in Business and Investments. The Borrower will not, and will not permit any of its Subsidiaries to, engage (directly or indirectly) in any business other than businesses in which they are engaged on the Effective Date and reasonable extensions thereof and other businesses that are complementary or reasonably related thereto.

Section 6.02. Consolidations, Mergers, Sales of Assets and Acquisitions. (a) The Borrower will not, and will not permit any of its Subsidiaries to, consolidate or merge with or into any other Person, provided that (i) the Borrower may merge with another Person if (x) such Borrower is the corporation surviving such merger and (y) immediately after giving effect to such merger, no Default or Event of Default shall have occurred and be continuing, and (ii) Subsidiaries of the Borrower may merge with one another.

(b) The Borrower will not, nor will it permit any of its Subsidiaries to, sell, convey, assign, lease, abandon or otherwise transfer or dispose of, voluntarily or involuntarily (any of the foregoing being referred to in this Section 6.02(b) as a " Disposition " and any series of related Dispositions constituting but a single Disposition), any of its properties or assets, tangible or intangible (including but not limited to sale, assignment, discount or other disposition of accounts, contract rights, chattel paper or general intangibles with or without recourse), except:

(i) any Disposition of used, worn out, obsolete or surplus property of the Borrower or any Subsidiary in the ordinary course of business;

(ii) the license (as licensor) of intellectual property so long as such license does not materially interfere with the business of the Borrower or any of its Subsidiaries;

(iii) the Disposition of cash, cash equivalents and investment securities;

(iv) the release, surrender or waiver of contract, tort or other claims of any kind as a result of the settlement of any litigation or threatened litigation;

(v) the granting or existence of Liens (and foreclosure thereon) not prohibited by this Agreement;

(vi) the lease or sublease of real property so long as such lease or sublease does not materially interfere with the business of the Borrower or any of its Subsidiaries;

(vii) Dividends not prohibited by Section 6.07;

(viii) any ceding of insurance or reinsurance in the ordinary course of business;

(ix) any Disposition by the Borrower or any of its Subsidiaries of any Non-Core Asset (as defined in the Subscription Agreement);

(x) Dispositions of properties or assets having an aggregate fair value (as determined in good faith by the board of directors of the Borrower) of less than $1,000,000;

(xi) Dispositions by the Borrower or any of its Subsidiaries of any of their respective properties or assets to the Borrower or any Wholly-Owned Subsidiary of the Borrower; and

(xii) other Dispositions to the extent that the fair market value of the assets the subject thereof (as determined in good faith by the board of directors or senior

management of the Borrower), when added to the fair market value of the assets the subject of any such other Disposition or Dispositions under this clause (xii) previously consummated during the same fiscal year of the Borrower (as determined in good faith by the board of directors or senior management of the Borrower), does not constitute more than 10% of the consolidated assets of the Borrower and its Subsidiaries as of the last day of the most recently ended fiscal year of the Borrower.

(c) The Borrower will not, nor will it permit any of its Subsidiaries to, acquire all or substantially all of the capital stock or assets of another Person unless at such time and immediately after giving effect thereto no Default or Event of Default exists or would result therefrom.

Section 6.03. Liens. Neither the Borrower nor any of its Subsidiaries will permit, create, assume, incur or suffer to exist any Lien on any asset tangible or intangible now owned or hereafter acquired by it, except:

(a) Liens existing on the date hereof and listed on Schedule 6.03 hereto;

(b) Liens securing repurchase agreements constituting a borrowing of funds by the Borrower or any Subsidiary of the Borrower in the ordinary course of business for liquidity purposes and in no event for a period exceeding 90 days in each case;

(c) Liens arising pursuant to purchase money mortgages, capital leases or security interests securing Indebtedness representing the purchase price (or financing of the purchase price within 90 days after the respective purchase) of assets acquired after the Effective Date;

(d) Liens (x) on any asset of any Person existing at the time such Person is merged or consolidated with or into the Borrower or any of its Subsidiaries and not created in contemplation of such event or (y) securing Acquired Indebtedness so long as such Lien existed prior to the contemplated acquisition, was not created in contemplation of such acquisition and only relates to assets of the Person so acquired;

(e) Liens securing obligations owed by the Borrower to any of its Subsidiaries or owed by any Subsidiary of the Borrower to the Borrower or any Subsidiary of the Borrower, in each case solely to the extent that such Liens are required by an Applicable Insurance Regulatory Authority for such Person to maintain such obligations;

(f) Liens securing insurance obligations of Subsidiaries of the Borrower owed by any Subsidiary of the Borrower to the Borrower or any Subsidiary of the Borrower, in each case solely to the extent that such Liens are required or requested by ratings agencies, clients or brokers for such Person to maintain such insurance obligations;

(g) Liens on investments and cash balances of any Regulated Insurance Company securing obligations of such Regulated Insurance Company in respect of trust or similar arrangements formed, letters of credit issued or funds withheld balances established, in each case, in the ordinary course of business for the benefit of cedents to secure reinsurance recoverables owed to them by such Regulated Insurance Company;

(h) Inchoate Liens for taxes, assessments or governmental charges or levies not yet due or Liens for taxes, assessments or governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves have been established in accordance with GAAP;

(i) Liens in respect of property or assets of the Borrower or any of its Subsidiaries imposed by law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers', warehousemen's, materialmen's and mechanics' liens and other similar Liens arising in the ordinary course of business, and (x) which do not in the aggregate materially detract from the value of the Borrower's or such Subsidiary's property or assets or materially impair the use thereof in the operation of the business of the Borrower or such Subsidiary or (y) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or assets subject to any such Lien;

(j) Licenses, sublicenses, leases, or subleases granted to other Persons not materially interfering with the conduct of the business of the Borrower or any of its Subsidiaries;

(k) easements, rights-of-way, restrictions, encroachments and other similar charges or encumbrances, and minor title deficiencies, in each case not securing Indebtedness and not materially interfering with the conduct of the business of the Borrower or any of its Subsidiaries;

(l) Liens arising out of the existence of judgments or awards not constituting an Event of Default under Section 7.07;

(m) Liens (other than Liens imposed under ERISA) incurred in the ordinary course of business in connection with workers compensation claims, unemployment insurance and social security benefits and Liens securing the performance of bids, tenders, leases and contracts in the ordinary course of business, statutory obligations, surety bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business and consistent with past practice (exclusive of obligations in respect of the payment for borrowed money);

(n) Bankers' Liens, rights of setoff and other similar Liens existing solely with respect to cash and cash equivalents on deposit in one or more accounts maintained by the Borrower or any of its Subsidiaries, in each case granted in the ordinary course of business in favor of the bank or banks with which such accounts are maintained;

(o) Liens arising out of the refinancing, extension, renewal or refunding of any Indebtedness secured by any Lien permitted by any of the clauses of this Section 6.03, provided that such Indebtedness is not increased and is not secured by any additional assets;

(p) Liens in respect of property or assets of any Subsidiary of the Borrower securing Indebtedness of the type described in clause (e) or (i) of the definition of "Permitted Subsidiary Indebtedness";

(q) Liens in respect of property or assets of any Subsidiary of the Borrower securing Indebtedness of the type described in clause (h) of the definition of "Permitted Subsidiary Indebtedness"; provided that the aggregate amount of the Indebtedness secured by such Liens shall not, when added to the aggregate amount of all outstanding obligations of the Borrower secured by Liens incurred pursuant to Section 6.03(r), exceed at any time 5% of Consolidated Net Worth at the time of incurrence of any new Liens under this clause (q); and

(r) in addition to the Liens described in clauses (a) through (q) above, Liens securing obligations of the Borrower; provided that the aggregate amount of the obligations secured by such Liens shall not, when added to the aggregate amount of outstanding Indebtedness of Subsidiaries incurred pursuant to clause (h) of the definition of "Permitted Subsidiary Indebtedness", exceed at any time 5% of Consolidated Net Worth at the time of incurrence of any new Liens under this clause (r).

Section 6.04. Indebtedness. (a) The Borrower will not, create, incur, assume or permit to exist any Indebtedness, or agree, become or remain liable (contingent or otherwise) to do any of the foregoing, except for the Loans and other Indebtedness which is either pari passu with, or subordinated in right of payment to, the Loans.

(b) The Borrower will not permit any of its Subsidiaries to create, incur, assume or permit to exist any Indebtedness, or agree, become or remain liable (contingent or otherwise) to do any of the foregoing, except for the Loans and Permitted Subsidiary Indebtedness.

Section 6.05. Issuance of Stock. The Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly issue, sell, assign, pledge, or otherwise encumber or dispose of any shares of its preferred or preference equity securities or options to acquire preferred or preference equity securities, except the issuance of preferred or preference equity securities, so long as (i) (x) no part of such preferred or preference equity securities is mandatorily redeemable (whether on a scheduled basis or as a result of the occurrence of any event or circumstance) prior to the first anniversary of the Maturity Date or (y) all such preferred or preference equity securities or options therefor are issued to and held by the Borrower and its Wholly-Owned Subsidiaries and (ii) such preferred or preference equity securities do not contain any financial performance related covenants or incurrence covenants which restrict the operations of the issuer thereof; provided that, the Borrower and its Subsidiaries may issue preferred stock as described on Schedule 6.05.

Section 6.06. Dissolution. The Borrower shall not suffer or permit dissolution or liquidation either in whole or in part, except through corporate reorganization to the extent permitted by Section 6.02.

Section 6.07. Restricted Payments. The Borrower will not declare or pay any dividends, purchase, redeem, retire, defease or otherwise acquire for value any of its Equity Interests now or hereafter outstanding, return any capital to its stockholders, partners or members (or the equivalent Persons thereof) as such, make any distribution of assets, Equity Interests, obligations or securities to its stockholders, partners or members (or the equivalent Persons

thereof) as such, or permit any of its Subsidiaries to purchase, redeem, retire, defease or otherwise acquire for value any Equity Interests in the Borrower or to sell any Equity Interests therein (each of the foregoing a "Dividend" and, collectively, "Dividends") unless (i) no Default or Event of Default shall have occurred and be continuing at the time of such Dividend or would result therefrom and (ii) the Consolidated Net Worth of the Borrower and its Subsidiaries after giving effect to such Dividend would equal or exceed an amount equal to the remainder of (x) the Consolidated Net Worth of the Borrower and its Subsidiaries on the Effective Date less (y) $100,000,000.

Section 6.08. Transactions with Affiliates. Neither the Borrower nor any of its Subsidiaries shall enter into or be a party to, a transaction with any Affiliate of the Borrower or such Subsidiary (which Affiliate is not the Borrower or a Subsidiary), except (i) transactions with Affiliates on terms (x) no less favorable to the Borrower or such Subsidiary than those that could have been obtained in a comparable transaction on an arm's length basis from an unrelated Person or (y) approved by a majority of the disinterested members of the board of directors of the Borrower, (ii) transactions and payments pursuant to agreements and arrangements disclosed in, or listed as an exhibit to, the Borrower's annual report on Form 10-K filed with the SEC on March 31, 2003 or any subsequent other filing with the SEC through the Effective Date or any such agreement or arrangement as thereafter amended, extended or replaced on terms that are, in the aggregate, no less favorable to the Borrower and its Subsidiaries than the terms of such agreement on the Effective Date, as the case may be, (iii) Dividends not prohibited by Section 6.07, (iv) fees and compensation paid to and indemnities provided on behalf of officers and directors of the Borrower or any of its Subsidiaries as reasonably determined in good faith by the board of directors or senior management of Borrower and (v) the issuance of common stock of the Borrower.

Section 6.09. Maximum Leverage Ratio. The Borrower will not permit the Leverage Ratio on the last day of any fiscal quarter or fiscal year of the Borrower to be greater than 0.35:1.00.

Section 6.10. Minimum Consolidated Tangible Net Worth. The Borrower will not permit Consolidated Tangible Net Worth on the last day of any fiscal quarter or fiscal year of the Borrower to be less than the sum of (i) $1,000,000,000 plus (ii) 40% of the sum of Consolidated Net Income for all Test Periods ending after the Effective Date where Consolidated Net Income for such respective Test Period or Test Periods was a positive amount, plus (iii) 40% of the aggregate Net Cash Proceeds received from any issuance of common or preferred equity interests of the Borrower consummated after the Effective Date.

Section 6.11. Limitation on Certain Restrictions on Subsidiaries. The Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or consensual restriction on the ability of any such Subsidiary to (a) pay dividends or make any other distributions on its capital stock or any other interest or participation in its profits owned by the Borrower or any of its Subsidiaries, or pay any Indebtedness owed to the Borrower or any of its Subsidiaries, (b) make loans or advances to the Borrower or any of its Subsidiaries or (c) transfer any of its properties or assets to the Borrower or any of its Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (i) applicable law, (ii) the Existing

LC Facility, (iii) the Shareholders Agreement, (iv) this Agreement and the other Credit Documents, (v) customary provisions restricting subletting or assignment of any lease governing any leasehold interest of the Borrower or any of its Subsidiaries, (vi) customary provisions restricting assignment of any licensing agreement (in which the Borrower or any of its Subsidiaries is the licensee) or other contract (including leases) entered into by the Borrower or any of its Subsidiaries in the ordinary course of business, (vii) restrictions on the transfer of any asset pending the close of the sale of such asset, (viii) restrictions on the transfer of any asset subject to a Lien permitted by Section 6.03, (ix) agreements entered into by a Regulated Insurance Company with an Applicable Insurance Regulatory Authority, (x) any instrument governing Acquired Indebtedness, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person or the properties or assets of the Person so acquired, (xi) customary provisions in partnership agreements, limited liability company organizational governance documents, joint venture agreements and other similar agreements entered into in the ordinary course of business that restrict the transfer of ownership interests in such partnership, limited liability company, joint venture or similar Person, (xii) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business, (xiii) pursuant to an agreement or instrument relating to any Permitted Subsidiary Indebtedness of the type described in clause (d), (g) or (h) of the definition thereof (1) if the encumbrances and restrictions contained in any such agreement or instrument taken as a whole are not materially less favorable to the Lenders than the encumbrances and restrictions contained in the Existing LC Facility or (2) if such encumbrance or restriction is not materially more disadvantageous to the Lenders than is customary in comparable financings and such encumbrance or restriction will not materially affect the Borrower's ability to make principal or interest payments on the Loans, and (xiv) any encumbrances or restrictions imposed by any amendments or refinancings of the contracts, instruments or obligations referred to in clause (x) above provided that such amendments or refinancings are no more materially restrictive with respect to such encumbrances and restrictions that those prior to such amendment or refinancing.

Section 6.12. Private Act. The Borrower will not become subject to a Private Act.

ARTICLE VII

Events of Default

If any of the following events (" Events of Default ") shall occur:

Section 7.01. Payments. The Borrower shall (a) default in the payment when due of any principal of any Loan, (b) default, and such default shall continue for three or more Business Days, in the payment when due of any interest on any Loan or any fees payable pursuant to the Credit Documents or (c) default in the prompt payment following notice or demand in respect of any other amounts owing hereunder or under any other Credit Document; or

Section 7.02. Representations, etc. Any representation, warranty or material statement made or deemed made pursuant to the last sentence of Section 4.02 by the Borrower

herein or in any other Credit Document or in any certificate or material statement delivered or required to be delivered pursuant hereto or thereto shall prove to be untrue in any material respect on the date as of which made or deemed made; or

Section 7.03. Covenants. The Borrower shall (a) default in the due performance or observance by it of any term, covenant or agreement contained in Section 5.01(d), 5.02(ii), 5.05 (but only with respect to the first sentence thereof), 5.10 or Article VI, or (b) default in the due performance or observance by it of any term, covenant or agreement (other than those referred to in Section 7.01 or clause (a) of this Section 7.03) contained in this Agreement and such default shall continue unremedied for a period of at least 45 days after written notice to the Borrower from the Administrative Agent or the Required Lenders; or

Section 7.04. Default under other Agreements. (a) The Borrower or any of its Subsidiaries shall (i) default in any payment with respect to Indebtedness (other than the Loans) in excess of $20,000,000 individually or in the aggregate, for the Borrower and its Subsidiaries, beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness was created or (ii) default in the observance or performance of any agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause (determined without regard to whether any notice of acceleration, or any lapse of time prior to the effectiveness of any notice of acceleration, is required), any such Indebtedness to become due prior to its stated maturity; or (b) Indebtedness of the Borrower or its Subsidiaries in excess of $20,000,000 shall be declared to be due and payable other than in accordance with the terms of such Indebtedness or required to be prepaid, other than by a regularly scheduled required prepayment or as a mandatory prepayment (unless such required prepayment or mandatory prepayment results from a default thereunder or an event of the type that constitutes an Event of Default), prior to the stated maturity thereof; or

Section 7.05. Bankruptcy, etc. The Borrower or any of its Subsidiaries (other than Insignificant Subsidiaries) shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy," as now or hereafter in effect, or any successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced against the Borrower or any of its Subsidiaries (other than Insignificant Subsidiaries) and the petition is not controverted within 10 days, or is not dismissed within 60 days, after commencement of the case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of the Borrower or any of its Subsidiaries (other than Insignificant Subsidiaries); or the Borrower or any of its Subsidiaries (other than Insignificant Subsidiaries) commences (including by way of applying for or consenting to the appointment of, or the taking of possession by, a rehabilitator, receiver, custodian, trustee, conservator or liquidator (collectively, a "conservator") of itself or all or any substantial portion of its property) any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency, liquidation, rehabilitation, supervision, conservatorship or similar law of any jurisdiction or the Bermuda Companies Law whether now or hereafter in effect relating to the Borrower or any of its Subsidiaries (other than Insignificant Subsidiaries); or any such proceeding is commenced against (a) any Regulated Insurance Company (other than any

Regulated Insurance Company that is an Insignificant Subsidiary) which is engaged in the business of underwriting insurance and/or reinsurance in the United States, or (b) the Borrower or any of its Subsidiaries (other than Insignificant Subsidiaries or any Regulated Insurance Company described in the immediately preceding clause (a)) to the extent such proceeding is consented to by such Person, and in the case of either clause (a) or (b) remains undismissed for a period of 60 days; or the Borrower or any of its Subsidiaries (other than Insignificant Subsidiaries) is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or (x) any Regulated Insurance Company (other than any Regulated Insurance Company that is an Insignificant Subsidiary) which is engaged in the business of underwriting insurance and/or reinsurance in the United States suffers any appointment of any conservator or the like for it or any substantial part of its property, or (y) the Borrower or any of its Subsidiaries (other than Insignificant Subsidiaries or any Regulated Insurance Company described in the immediately preceding clause (x)) consents to any appointment of any conservator or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of 60 days; or the Borrower or any of its Subsidiaries (other than Insignificant Subsidiaries) makes a general assignment for the benefit of creditors; or any corporate action is taken by the Borrower or any of its Subsidiaries (other than Insignificant Subsidiaries) for the purpose of effecting any of the foregoing; or

Section 7.06. ERISA. (i) An event or condition specified in Section 5.07 shall occur or exist with respect to any Plan or Multiemployer Plan or Foreign Pension Plan, (ii) the Borrower, any of its Subsidiaries or any of its ERISA Affiliates shall fail to pay when due any amount which they shall have become liable to pay to the PBGC or to a Plan or a Multiemployer Plan under Title IV of ERISA, or (iii) a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Plan must be terminated, and as a result of such event, failure or condition, together with all such other events, failures or conditions, the Borrower, any of its Subsidiaries or any of its ERISA Affiliates shall be reasonably likely in the opinion of the general counsel of the Borrower to incur a liability to a Plan, a Multiemployer Plan, a Foreign Pension Plan or PBGC (or any combination of the foregoing) which could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect; or

Section 7.07. Judgments. One or more judgments or decrees shall be entered against the Borrower or any of its Subsidiaries involving a liability, net of undisputed insurance and reinsurance, of $20,000,000 or more in the case of any one such judgment or decree or in the aggregate for all such judgments and decrees for the Borrower and its Subsidiaries and any such judgments or decrees shall not have been vacated, discharged, satisfied, stayed or bonded pending appeal within 60 days from the entry thereof; or

Section 7.08. Insurance Licenses. Any one or more Insurance Licenses of the Borrower or any of its Subsidiaries shall be suspended, limited or terminated or shall not be renewed, or any other action shall be taken by any Governmental Authority, and such action would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect; or

Section 7.09. Change of Control. A Change in Control shall occur;

then, and in any such event, and at any time thereafter, if any Event of Default shall then be continuing, the Administrative Agent shall, upon the written request of the Required Lenders, by written notice to the Borrower, take any or all of the following actions, without prejudice to the rights of the Administrative Agent or any Lender to enforce its claims against the Borrower, except as otherwise specifically provided for in this Agreement (provided that if an Event of Default specified in Section 7.05 of this Article shall occur with respect to the Borrower, the result which would occur upon the giving of written notice by the Administrative Agent as specified in clauses (i) and (ii) below shall occur automatically without the giving of any such notice): (a) declare the Commitments (or the unused portion thereof) terminated, whereupon the Commitment of each Lender (or such unused portion) shall forthwith terminate immediately and any commitment fees shall forthwith become due and payable without any other notice of any kind and (ii) declare the principal of, and any accrued interest in respect of, all Loans and all other obligations owing hereunder and under the other Credit Documents to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. Notwithstanding the foregoing, the Administrative Agent shall have available to it all other remedies at law or equity, and shall exercise any one or all of them at the request of the Required Lenders.

ARTICLE VIII

The Administrative Agent

Section 8.01. Appointment. Each of the Lenders hereby irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof, together with such actions and powers as are reasonably incidental thereto.

Section 8.02. Administrative Agent in its Individual Capacity. The bank serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if it were not the Administrative Agent hereunder.

Section 8.03. Exculpatory Provisions. The Administrative Agent shall not have any duties or obligations except those expressly set forth herein. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby that the Administrative Agent is required to exercise in writing as directed by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.02), and (c) except as expressly set forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Subsidiaries that is

communicated to or obtained by the bank serving as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.02) or in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Administrative Agent by the Borrower or a Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement, (ii) the contents of any certificate, report or other document delivered hereunder or in connection herewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.

Section 8.04. Reliance. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.

Section 8.05. Delegation of Duties. The Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.

Section 8.06. Resignation. Subject to the appointment and acceptance of a successor Administrative Agent as provided in this paragraph, the Administrative Agent may resign at any time by notifying the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right to appoint a successor administrative agent, with the consent of the Borrower (not to be unreasonably withheld or delayed), provided that no such consent shall be required at any time when a Default or Event of Default exists. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers,

privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the Administrative Agent's resignation hereunder, the provisions of this Article and Section 9.03 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Administrative Agent.

Section 8.07. Non-Reliance. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any related agreement or any document furnished hereunder or thereunder.

Section 8.08. Documentation Agents. Notwithstanding any other provision of this Agreement or any provision of any other Credit Document, each of the Documentation Agents are named as such for recognition purposes only, and in their respective capacities as such shall have no powers, duties, responsibilities or liabilities with respect to this Agreement or the other Credit Documents or the transactions contemplated hereby and thereby. Without limitation of the foregoing, none of the Documentation Agents shall, solely by reason of this Agreement or any other Credit Documents, have any fiduciary relationship with any Lender or any other Person.

ARTICLE IX

Miscellaneous

Section 9.01. Notices. (a) Except in the case of notices and other communications expressly permitted to be given by telephone (and subject to paragraph (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows:

(i) if to the Borrower, to it at Arch Capital Group Ltd., Wessex House, 3 ^rd Floor, 45 Reid Street, Hamilton HM 12 Bermuda, Attention of chief financial officer (Telecopy No. 441-278-9255);

(ii) if to the Administrative Agent, to (x) JPMorgan Chase Bank, Loan and Agency Services Group, 1111 Fanin Street, Houston, Texas 77002, Attention of Melissa Rivas (Telecopy No. (713) 750-2223), with a copy to JPMorgan Chase Bank, 270 Park Avenue, Fourth Floor, New York 10017, Attention of Heather Lindstrom (Telecopy No. (212) 270-1511 or (y) in the case of notices and other communications in respect of

Alternate Currency Loans, J.P. Morgan Europe Limited, 125 London Wall, EC2Y 5AJ, Attention of Caroline Walsh (Telecopy No. (44) 207-777-2360); and

(iii) if to any other Lender, to it at its address (or telecopy number) set forth in its Administrative Questionnaire.

(b) Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communications pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices pursuant to (x) Article II unless otherwise agreed by the Administrative Agent and the applicable Lender or (y) Section 5.01(d)(x). The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.

(c) Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt.

Section 9.02. Waivers; Amendments. (a) No failure or delay by the Administrative Agent, or any Lender in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent, and the Lenders hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent or any Lender may have had notice or knowledge of such Default at the time.

(b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Required Lenders or by the Borrower and the Administrative Agent with the consent of the Required Lenders; provided that no such agreement shall (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender affected thereby, (iii) postpone the scheduled date of payment of the principal amount of any Loan or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender affected thereby, (iv) change Section 2.15(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, (v) change the definition of Approved Currency (or any component definition thereof) to include an additional foreign

currency not included therein on the date hereof without the written consent of each Approved Currency Lender affected thereby, or (vi) change any of the provisions of this Section or the definition of "Required Lenders" or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender; provided , further , that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent hereunder without the prior written consent of the Administrative Agent.

Section 9.03. Expenses; Indemnity; Damage Waiver. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent, in connection with the syndication of the credit facility provided for herein, the preparation and administration of this Agreement or any amendments, modifications or waivers of the provisions hereof (whether or not the transactions contemplated hereby or thereby shall be consummated), and (ii) all out-of-pocket expenses incurred by the Administrative Agent, or any Lender, including the fees, charges and disbursements of any counsel for the Administrative Agent, or any Lender, in connection with the enforcement or protection of its rights in connection with this Agreement, including its rights under this Section, or in connection with the Loans made hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans.

(b) The Borrower shall indemnify the Administrative Agent, and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an " Indemnitee ") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement or any agreement or instrument contemplated hereby, the performance by the parties hereto of their respective obligations hereunder or any other transactions contemplated hereby, (ii) any Loan or the use of the proceeds therefrom, (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee or any Related Party of such Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and non-appealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or any Related Party of such Indemnitee.

(c) To the extent that the Borrower fails to pay any amount required to be paid by it to the Administrative Agent, under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent such Lender's Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim,

damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent, in its capacity as such.

(d) To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, any Loan or the use of the proceeds thereof.

(e) All amounts due under this Section shall be payable promptly after written demand therefor.

Section 9.04. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby except that (i) the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants (to the extent provided in paragraph (c) of this Section) and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

(b) (i) Subject to the conditions set forth in paragraph (b)(ii) below, any Lender may assign to one or more banks, investment funds or other institutions that make or hold commercial loans in the ordinary course of their businesses all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it) with the prior written consent (such consent not to be unreasonably withheld) of:

(A) the Borrower, provided that no consent of the Borrower shall be required for an assignment to a Lender, an Affiliate of a Lender, an Approved Fund or, if an Event of Default has occurred and is continuing, any other assignee; and

(B) the Administrative Agent, provided that no consent of the Administrative Agent shall be required for an assignment of any Commitment to an assignee that is a Lender with a Commitment immediately prior to giving effect to such assignment.

(ii) Assignments shall be subject to the following additional conditions:

(A) except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire remaining amount of the assigning Lender's Commitment or Loans of any Class, the amount of the Commitment or Loans of the assigning Lender subject to each such assignment (determined as of the date

the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 unless each of the Borrower and the Administrative Agent otherwise consent, provided that no such consent of the Borrower shall be required if an Event of Default under Section 7.01, 7.02 or 7.05 has occurred and is continuing;

(B) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement, provided that this clause shall not be construed to prohibit the assignment of a proportionate part of all the assigning Lender's rights and obligations in respect of one Class of Commitments or Loans;

(C) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500; and

(D) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.

For the purposes of this Section 9.04(b), the term " Approved Fund " has the following meaning:

" Approved Fund " means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

(iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(iv) of this Section, from and after the effective date specified in each Assignment and Assumption the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement ( provided that any liability of the Borrower to such assignee under Section 2.12, 2.13 or 2.14 shall be limited to the amount, if any, that would have been payable thereunder by the Borrower in the absence of such assignment, except to the extent any such amounts are attributable to a Change in Law), and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.12, 2.13, 2.14 and 9.03). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 9.04 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (c) of this Section.

(iv) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans and owing to, each Lender pursuant to the terms hereof from time to time (the " Register "). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower, and any Lender, at any reasonable time and from time to time upon reasonable prior notice.

(v) Upon its receipt of a duly completed Assignment and Assumption executed by an assigning Lender and an assignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Assumption and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph.

(c) (i) Any Lender may, without the consent of the Borrower or the Administrative Agent, sell participations to one or more banks or other entities (a " Participant ") in all or a portion of such Lender's rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (A) such Lender's obligations under this Agreement shall remain unchanged, (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (C) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 9.02(b) that affects such Participant. Subject to paragraph (c)(ii) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.12, 2.13 and 2.14 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.15(c) as though it were a Lender.

(ii) A Participant shall not be entitled to receive any greater payment under Section 2.12 or 2.14 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent and the entitlement to greater payment results solely from a Change in Law. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.14 unless the Borrower is notified of the

participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.14(e) as though it were a Lender.

(d) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including without limitation any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

(e) Notwithstanding anything to the contrary contained herein, any Lender (a "Granting Lender") may grant to a special purpose funding vehicle (an, "SPC") of such Granting Lender, identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Borrower, the option to provide to the Borrower all or any part of any Loan that such Granting Lender would otherwise be obligated to make to the Borrower pursuant to Section 2.01, provided that (i) nothing herein shall constitute a commitment to make any Loan by any SPC and (ii) if an SPC elects not to exercise such option or otherwise fails to provide all or any part of such Loan, the Granting Lender shall be obligated to make such Loan pursuant to the terms hereof. The making of a Loan by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Loan were made by the Granting Lender. Each party hereto hereby agrees that (x) no SPC shall be liable for any payment under this Agreement for which a Lender would otherwise be liable and (y) the Granting Lender for any SPC shall be (and hereby agrees that it is) liable for any payment under this Agreement for which the SPC would be liable in the absence of preceding clause (x). In furtherance of the foregoing, each party hereto hereby agrees that, prior to the date that is one year and one day after the payment in full of all outstanding senior indebtedness of any SPC, it will not institute against, or join any other person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or similar proceedings under the laws of the United States or any State thereof. In addition, notwithstanding anything to the contrary contained in this Section 9.04 any SPC may (i) with notice to, but without the prior written consent of, the Borrower or the Administrative Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Loans to its Granting Lender or to any financial institutions (if consented to by the Borrower and the Administrative Agent) providing liquidity and/or credit facilities to or for the account of such SPC to fund the Loans made by such SPC or to support the securities (if any) issued by such SPC to fund such Loans and (ii) disclose on a confidential basis any non-public information relating to its Loans to any rating agency, commercial paper dealer or provider of a surety, guarantee or credit or liquidity enhancement to such SPC.

Section 9.05. Survival. All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any

accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid and so long as the Commitments have not expired or terminated. The provisions of Sections 2.12, 2.13, 2.14 and 9.03 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Commitments or the termination of this Agreement or any provision hereof.

Section 9.06. Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement.

Section 9.07. Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.

Section 9.08. Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of the Borrower against any of and all the obligations of the Borrower now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have.

Section 9.09. Governing Law; Jurisdiction; Consent to Service of Process . This Agreement shall be construed in accordance with and governed by the law of the State of New York.

(b) Each party hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of

the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent, or any Lender may otherwise have to bring any action or proceeding relating to this Agreement against the Borrower or its properties in the courts of any jurisdiction.

(c) Each party hereto hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

(d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law.

Section 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

Section 9.11. Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.

Section 9.12. Confidentiality. Each of the Administrative Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that (i) the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential in accordance with the terms of this Agreement and (ii) that the Administrative Agent and each Lender shall be responsible for any breach of this Section 9.12 by any of its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any

subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Borrower and its obligations, (g) with the consent of the Borrower or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Administrative Agent, or any Lender on a nonconfidential basis from a source other than the Borrower. For the purposes of this Section, " Information " means all information received from the Borrower relating to the Borrower or its business, other than any such information that is available to the Administrative Agent, or any Lender on a nonconfidential basis prior to disclosure by the Borrower. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information or, in the case of any Lender, such Lender has treated such Information in a manner consistent with banking industry standards for the treatment of confidential information. Notwithstanding anything herein to the contrary, each party to this Agreement (and any employee, representative or other agent of each such party) may disclose to any and all persons, without limitation of any kind, the U.S. federal income tax treatment and the U.S. federal income tax structure of the transactions contemplated hereby and all materials of any kind (including opinions or other tax analyses) that are provided to it relating to such tax treatment and tax structure. However, no disclosure of any information relating to such tax treatment or tax structure may be made to the extent nondisclosure is reasonably necessary in order to comply with applicable securities laws. The provisions of this Section 9.12 shall survive the termination of the Commitments and repayment of the Loans.

Section 9.13. Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which are treated as interest on such Loan under applicable law (collectively the " Charges "), shall exceed the maximum lawful rate (the " Maximum Rate ") which may be contracted for, charged, taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender.

Section 9.14. Calculations. For purposes of this Agreement, the Dollar Equivalent of each Loan that is an Alternate Currency Loan shall be calculated on the date when any such Loan is made, on the first Business day of each month and at such other times as designated by the Administrative Agent. Such Dollar Equivalent shall remain in effect until the same is recalculated by the Administrative Agent as provided above and notice of such

recalculation is received by the Borrower, it being understood that until such notice of such recalculation is received, the Dollar Equivalent shall be that Dollar Equivalent as last reported to the Borrower by the Administrative Agent. The Administrative Agent shall promptly notify the Borrower and the Lenders of each such determination of the Dollar Equivalent.

Section 9.15. Euro. (a) If at any time that an Alternate Currency Loan is outstanding, the relevant Alternate Currency is fully replaced as the lawful currency of the country that issued such Alternate Currency (the "Issuing Country") by the Euro so that all payments are to be made in the Issuing Country in Euros and not in the Alternate Currency previously the lawful currency of such country, then such Alternate Currency Loan shall be automatically converted into a Loan denominated in Euros in a principal amount equal to the amount of Euros into which the principal amount of such Alternate Currency Loan would be converted pursuant to the EMU Legislation or any other applicable law and thereafter no further Loans will be available in such Alternate Currency, with the basis of accrual of interest, notices requirements and payment offices with respect to such converted Loans to be that consistent with the convention and practices in the London interbank market for Euro denominated Loans.

(b) The Borrower shall from time to time, at the request of any Lender, pay to such Lender the amount of any losses, damages, liabilities, claims, reduction in yield, additional expense, increased cost, reduction in any amount payable, reduction in the effective return of its capital, the decrease or delay in the payment of interest or any other return forgone by such Lender or its affiliates as a result of the tax or currency exchange resulting from the introduction, changeover to or operation of the Euro in any applicable nation or eurocurrency market.

Section 9.16. Judgment Currency. (a) The Borrower's obligations hereunder and under the other Credit Documents to make payments in the applicable Approved Currency (the "Obligation Currency") shall not be discharged or satisfied by any tender or recovery pursuant to any judgment expressed in or converted into any currency other than the Obligation Currency, except to the extent that such tender or recovery results in the effective receipt by the Administrative Agent or the respective Lender of the full amount of the Obligation Currency expressed to be payable to the Administrative Agent or such Lender under this Agreement or the other Credit Documents. If, for the purpose of obtaining or enforcing judgment against the Borrower in any court or in any jurisdiction, it becomes necessary to convert into or from any currency other than the Obligation Currency (such other currency being hereinafter referred to as the "Judgment Currency") an amount due in the Obligation Currency, the conversion shall be made on a basis consistent with the definition of Dollar Equivalent but determined, in each case, on the Business Day immediately preceding the day on which the judgment is given (such Business Day being hereinafter referred to as the "Judgment Currency Conversion Date").

(b) If there is a change in the rate of exchange prevailing between the Judgment Currency Conversion Date and the date of actual payment of the amount due, the Borrower covenants and agrees to pay, or cause to be paid, such additional amounts, if any (but in any event not a lesser amount) as may be necessary to ensure that the amount paid in the Judgment Currency, when converted at the rate of exchange prevailing on the date of payment, will produce the amount of the Obligation Currency which could have been purchased with the amount of Judgment Currency stipulated in the judgment or judicial award at the rate of exchange prevailing on the Judgment Currency Conversion Date.

(c) For purposes of determining the Dollar Equivalent, or any other rate of exchange for this Section, such amounts shall include any premium and costs payable in connection with the purchase of the Obligation Currency.

Section 9.17. Special Provisions Relating to Currencies Other Than Dollars. (a) All funds to be made available to the Administrative Agent pursuant to this Agreement in Euros or Pounds Sterling shall be made available to the Administrative Agent in immediately available, freely transferable, cleared funds to such account with such bank in such principal financial center in such Participating Member State (or in London) as the Administrative Agent shall from time to time nominate for this purpose.

(b) In relation to the payment of any amount denominated in Euros, Pounds Sterling or in a European national currency unit, the Administrative Agent shall not be liable to the Borrower or any of the Lenders for any delay, or the consequences of any delay, in the crediting to any account of any amount required by this Agreement to be paid by the Administrative Agent if the Administrative Agent shall have taken all relevant and necessary steps to achieve, on the date required by this Agreement, the payment of such amount in immediately available, freely transferable, cleared funds (in Euros, Pounds Sterling or, as the case may be, in the relevant European national currency unit) to the account with the bank in the principal financial center in the participating member state which the Borrower or, as the case may be, any Lender shall have specified for such purpose. In this Section 9.17(b), "all relevant steps" means all such steps as may be prescribed from time to time by the regulations or operating procedures of such clearing or settlement system as the Administrative Agent may from time to time determine for the purpose of clearing or settling payments of Euros, Pounds Sterling or the relevant European national currency unit. Furthermore, and without limiting the foregoing, the Administrative Agent shall not be liable to the Borrower or any of the Lenders with respect to the foregoing matters in the absence of its gross negligence or willful misconduct (as determined by a court of competent jurisdiction in a final and non-appealable decision or pursuant to a binding arbitration award or as otherwise agreed in writing by the affected parties).

Section 9.18. Pro Rata Borrowings. The Borrower will in good faith endeavor, to the extent practicable, through the borrowing and/or repayment of Dollar Revolving Loans and/or Approved Currency Revolving Loans denominated in Dollars, to cause each of (i) the proportion of the average outstanding Principal Amount of Revolving Loans to the total Commitments, (ii) the proportion of the average outstanding Principal Amount of Dollar Loans to the total Dollar Commitments and (iii) the proportion of the average outstanding Principal Amount of Approved Currency Loans to the total Approved Currency Commitments for any given period of six months to be roughly equivalent. Nothing in this Section 9.18 shall be construed to place any obligation on Borrower with respect to (i) the borrowing or repayment of Alternate Currency Loans or (ii) the borrowing or repayment of Dollar Revolving Loans or Approved Currency Revolving Loans denominated in Dollars in an amount greater or less than the aggregate amount of Dollar Revolving Loans and Approved Currency Revolving Loans denominated in Dollars, the Borrower otherwise intends to have outstanding based on its determination of its business needs.

* *

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

Address:
Wessex House, 3 ^rd floor	ARCH CAPITAL GROUP LTD.
45 Reid Street Hamilton, HM 12 Bermuda
Attention: John D. Vollaro Telephone: (441) 278-9253 Facsimile: (441) 278-9255	By:	/s/ CONSTANTINE IORDANOU Title: President and Chief Executive Officer
	JPMORGAN CHASE BANK, Individually and as Administrative Agent
	By:	/s/ ROBERT ANASTASIO Title: Vice President
	BANK OF AMERICA, N.A., Individually and as Syndication Agent
	By:	/s/ DEBRA BASIER Title: Principal
	THE BANK OF BERMUDA LIMITED
	By:	/s/ A. KERRY DAVISON Title: Vice President
	THE BANK OF NEW YORK
	By:	/s/ JIMMY TSE Title: Vice President

		THE BANK OF N.T. BUTTERFIELD & SON LIMITED
		By:		/s/ JONATHAN RAYNOR Title: Vice President
		By:		/s/ MICHAEL M c WATT Title: Senior Vice President
		BANK ONE, NA
		By:		/s/ GERARD P. FOGARTY Title: Director
		BARCLAYS BANK PLC
		By:		/s/ PAUL JOHNSON Title: Relationship Director
		CHANG HWA COMMERICAL BANK, LTD., NEW YORK BRANCH
		By:		/s/ MING-HSIEN LIN Title: SVP & General Manager
		COMMERZBANK AG New York and Grand Cayman Branches
		By:		/s/ MICHAEL P. M c CARTHY Title: Vice President
		By:		/s/ WERNER SAMUEL Title: Senior Vice President

		CREDIT SUISSE FIRST BOSTON, acting through its Cayman Islands Branch
		By:		/s/ JAY CHALL Title: Director
		By:		/s/ CASSANDRA DROOGAN Title: Associate
		FIRST COMMERCIAL BANK, New York Agency
		By:		/s/ BRUCE M. J. JU Title: V.P. & General Manager
		FLEET NATIONAL BANK
		By:		/s/ LAWRENCE DAVIS Title: Portfolio Manager
		LLOYDS TSB BANK PLC
		By:		/s/ MATTHEW S.R. TUCK Title: Vice President Financial Institutions, USA
		By:		/s/ CANDICE BEATO Title: Assistant Vice President Financial Institutions, USA
		MERRILL LYNCH BANK USA
		By:		/s/ DAVID L. MILLETT Title: Vice President

		WACHOVIA BANK, NATIONAL ASSOCIATION
		By:		/s/ GREG WILCOX Title: Vice President

EXHIBIT A

ASSIGNMENT AND ASSUMPTION

This Assignment and Assumption (the " Assignment and Assumption ") is dated as of the Effective Date set forth below and is entered into by and between [ Insert name of Assignor ] (the " Assignor ") and [ Insert name of Assignee ] (the " Assignee "). Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (as amended, the " Credit Agreement "), receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.

For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (i) all of the Assignor's rights and obligations in its capacity as a Lender under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of the Assignor under the respective facilities identified below and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of the Assignor (in its capacity as a Lender) against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned pursuant to clauses (i) and (ii) above being referred to herein collectively as the " Assigned Interest "). Such sale and assignment is without recourse to the Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by the Assignor.

1.	Assignor:
2.	Assignee:	[and is an Affiliate/Approved Fund of [ identify Lender ](1)]
3.	Borrower:	Arch Capital Group Ltd.
4.	Administrative Agent:	JPMorgan Chase Bank, as the administrative agent under the Credit Agreement
5.	Credit Agreement:	The Credit Agreement dated as of September 12, 2003 among Arch Capital Group Ltd., the Lenders parties thereto,

(1): Select as applicable.

				JPMorgan Chase Bank, as Administrative Agent, Bank of America, N.A. as Syndication Agent and Commerzbank AG, New York Branch, Credit Suisse First Boston and Wachovia Bank, National Association, as Documentation Agents.
6.		Assigned Interest:

Aggregate Amount of Commitment/Loans for all Lenders	Amount of Commitment/Loans Assigned
$	$	%
$	$	%
$	$	%

Effective Date: , 20 [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]

The terms set forth in this Assignment and Assumption are hereby agreed to:

		ASSIGNOR
		[NAME OF ASSIGNOR]
		By:		Title:
		ASSIGNEE
		[NAME OF ASSIGNEE]
		By:		Title:

(2): Fill in the appropriate terminology for the types of facilities under the Credit Agreement that are being assigned under this Assignment (e.g., "Dollar Revolving Commitment," "Approved Currency Term Loans," etc.).
(3): Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans of all Lenders thereunder.

[Consented to and](4) Accepted:
[NAME OF ADMINISTRATIVE AGENT], as Administrative Agent
By:		Title:
[Consented to:](5)
[ARCH CAPITAL GROUP LTD.]
By:		Title:

(4): To be added only if the consent of the Administrative Agent is required by the terms of the Credit Agreement.
(5): To be added only if the consent of the Borrower is required by the terms of the Credit Agreement.

ANNEX 1

STANDARD TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION

1. Representations and Warranties.

1.1 Assignor. The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Credit Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Credit Document or (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Credit Document.

1.2. Assignee. The Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it satisfies the requirements, if any, specified in the Credit Agreement that are required to be satisfied by it in order to acquire the Assigned Interest and become a Lender, (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of the Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it has received a copy of the Credit Agreement, together with copies of the most recent financial statements delivered pursuant to Section 5.01 thereof, as applicable, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase the Assigned Interest on the basis of which it has made such analysis and decision independently and without reliance on the Administrative Agent or any other Lender, and (v) if it is a Foreign Lender, attached to the Assignment and Assumption is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by the Assignee; and (b) agrees that (i) it will, independently and without reliance on the Administrative Agent, the Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Credit Documents are required to be performed by it as a Lender.

2. Payments. From and after the Effective Date, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignor for amounts which have accrued to but excluding the Effective Date and to the Assignee for amounts which have accrued from and after the Effective Date.

3. General Provisions. This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment and Assumption by telecopy shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. This Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of New York.

EXHIBIT B

FORM OF BORROWING REQUEST

[Date]

JPMorgan Chase Bank, as Administrative Agent
for the Lenders parties to the
Credit Agreement referred to below

One Chase Manhattan Plaza
New York, New York 10081

Attention:

Ladies and Gentlemen:

The undersigned, Arch Capital Group Ltd., refers to the Credit Agreement, dated as of September 12, 2003 (as amended, modified or supplemented from time to time, the "Credit Agreement," the terms defined therein being used herein as therein defined), among the undersigned, the Lenders from time to time party thereto, Commerzbank AG, Credit Suisse First Boston and Wachovia Bank, National Association, as Documentation Agents, Bank of America, N.A. as Syndication Agent and you, as Administrative Agent for such Lenders, and hereby [gives you irrevocable notice] [confirms in writing the irrevocable telephone notice], pursuant to Section 2.03 of the Credit Agreement, that the undersigned [hereby requests] [has requested] a Borrowing of Revolving Loans under the Credit Agreement, and in that connection sets forth below the information relating to such Borrowing (the "Proposed Borrowing") as required by Section 2.03 of the Credit Agreement:

(i) The aggregate principal amount of the Proposed Borrowing is [ ].(6)

(ii) The Business Day of the Proposed Borrowing is 20 .(7)

(6): Amount to be expressed in (x) Dollars, if a Dollar Loan and (y) Dollars, Euros or Pounds Sterling, if an Approved Currency Revolving Loan.
(7): (i) Shall be at least (x) three Business Days after the date hereof in the case of Eurocurrency Loans denominated in Dollars, provided that any such notice shall be deemed to have been given on a certain day only if given before 10:00 A.M. (New York time) on such day and (y) four Business Days after the date hereof in the case of Eurocurrency Borrowing denominated in an Alternate Currency, provided that any such notice shall be deemed to have been given on a certain day only if given before 1:00 p.m. (New York time) on such day and (ii) may be the same Business Day as the date hereof in the case of ABR Loans, provided that any such notice shall be deemed to have been given on a certain day only if given before 11:00 A.M. (New York time) on such day.

(ii) The Proposed Borrowing is to consist of [Dollar Revolving Loans] [Approved Currency Revolving Loans, which are to be denominated in [specify currency]].

(iii) The Proposed Borrowing is to consist of [ABR Loans] [Eurocurrency Loans].

[(iv) The initial Interest Period for the Proposed Borrowing is month[s]](8).

(v) The proceeds of the Borrowing are to be deposited as follows .(9)

The undersigned, Arch Capital Group Ltd., hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed Borrowing:

(A) the representations and warranties made by or on behalf of the Borrower contained in the Credit Agreement and in the other Credit Documents are and will be true and correct in all material respects with the same effect as though made on and as of the date hereof (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date is true and correct in all material respects only as of such specified date); and

(B) no Default or Event of Default has occurred and is continuing.

		Very truly yours,
		ARCH CAPITAL GROUP LTD.
		By		Name: Title:

(8): To be included for a Proposed Borrowing of Eurocurrency Loans.
(9): Insert disbursement instructions.

EXHIBIT C-1

[Opinion of Borrower's Special U.S. Counsel]

EXHIBIT C-2

[Opinion of Borrower's Special Bermuda counsel]

EXHIBIT D

ARCH CAPITAL GROUP LTD.

Officer's Certificate

I, the undersigned, [President] [Vice President] of ARCH CAPITAL GROUP LTD., a [company] [corporation] organized and existing under the laws of Bermuda (the "Borrower"), do hereby certify that:

1. This Certificate is furnished pursuant to Section 4.01(d) of the Credit Agreement, dated as of September 12, 2003, among Arch Capital Group Ltd., the Lenders from time to time party thereto, JPMorgan Chase Bank, as Administrative Agent, Bank of America, N.A., as Syndication Agent and Commerzbank AG, New York Branch, Credit Suisse First Boston and Wachovia Bank, National Association as Documentation Agents (such Credit Agreement, as in effect on the date of this Certificate, being herein called the "Credit Agreement"). Unless otherwise defined herein capitalized terms used in this Certificate have the meanings assigned to those terms in the Credit Agreement.

2. The persons named in Annex A have been duly elected, have duly qualified as and at all times since , 20 (1) (to and including and date hereof) have been officers of the Borrower, holding the respective offices in Annex A set opposite their names, and the signatures on Annex A set opposite their names are their genuine signatures.

3. Attached hereto as Annex B is a copy of the [Certificate of Incorporation] [equivalent organizational document] of the Borrower as filed [in the office of the [Registrar]] on , , together with all amendments thereto adopted through the date hereof.

4. Attached hereto as Annex C is a true and correct copy of the [By-Laws] [equivalent organizational document] of the Borrower as in effect on , (3) together with all amendments thereto adopted through the date hereof.

5. Attached hereto as Annex D is a true and correct copy of resolutions duly adopted on , [by unanimous written consent of the Board of Directors of the Borrower] [by a meeting of the Board of Directors of the Borrower, at which a quorum was present and acting throughout], which resolutions have not been revoked, modified, amended or rescinded and are still in full force and effect. Except as attached hereto as Annex D, no resolutions have been adopted by the Board of Directors of the Borrower which deal with the execution, delivery or performance of any of the Credit Documents.

6. On the date of this Certificate, all of the applicable conditions set forth in Section 4.01(d) through 4.01(j), inclusive, of the Credit Agreement have been satisfied.

(1): Insert a date prior to the time of any corporate action relating to the Credit Agreement.
(3): Insert same date as in paragraph 2 of this Certificate.

7. On the date hereof, the representations and warranties made by or on behalf of the Borrower contained in the Credit Agreement and the other Credit Documents are true and correct in all material respects on the date of this Certificate (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date).

8. On the date hereof, no Default or Event of Default has occurred and is continuing.

9. I know of no proceeding for the dissolution or liquidation of the Borrower or threatening its existence.

IN WITNESS WHEREOF, I have hereunto set my hand this day of , 20 .

		[NAME OF BORROWER]
		By		Name: Title:

I, the undersigned, [Insert title of Secretary][Assistant Secretary]] of the Borrower, do hereby certify that:

1. [Insert name of Person making the above certifications] is the duly elected and qualified [President] [Vice President] of the Borrower and the signature above is his/her genuine signature.

2. The certifications made by [name] in items 2, 3, 4 and 5 above are true and correct.

3. I know of no proceeding for the dissolution or liquidation of the Borrower or threatening its existence.

IN WITNESS WHEREOF, I have hereunto set my hand this day of 20 .

		ARCH CAPITAL GROUP LTD.
		By		Name: Title:

ANNEX A

Name(2)		Office		Signature

(2): Include name, office and signature of each officer who will sign any Credit Document, including the officer who will sign the certification at the end of this Certificate.

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Exhibit 10.7

Table of Contents
ARTICLE I Definitions
ARTICLE II The Credits
ARTICLE III Representations and Warranties
ARTICLE IV Conditions
ARTICLE V Affirmative Covenants
ARTICLE VI Negative Covenants
ARTICLE VII Events of Default
ARTICLE VIII The Administrative Agent
ARTICLE IX Miscellaneous

ANNEX 1

EXHIBIT B

FORM OF BORROWING REQUEST

EXHIBIT C-1

EXHIBIT C-2

EXHIBIT D

ARCH CAPITAL GROUP LTD. Officer's Certificate

ANNEX A

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Exhibit 15

[Letterhead of PricewaterhouseCoopers LLP]

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Commissioners:

We are aware that our report dated October 27, 2003 on our review of interim financial information of Arch Capital Group Ltd. (issued pursuant to the provisions of Statement of Auditing Standards No. 100) for the period ended September 30, 2003 and included in this quarterly report on Form 10-Q is incorporated by reference in the Registration Statement on Forms S-3 (Registration No. 33-34499, Registration No. 333-82612 and Registration No. 333-110190) and in the Registration Statements on Forms S-8 (Registration No. 33-99974, Registration No. 333-86145, Registration No. 333-72182, Registration No. 333-82772 and Registration No. 333-98971).

Very truly yours,

/s/ PricewaterhouseCoopers LLP
New York, New York
November 12, 2003

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Exhibit 15

[Letterhead of PricewaterhouseCoopers LLP]

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Exhibit 31.1

Certification
of Chief Executive Officer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

I, Constantine Iordanou, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Arch Capital Group Ltd.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in the report;

4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.: Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.: Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c.: Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and to the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a.: All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.: Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	November 12, 2003

By:	/s/ CONSTANTINE IORDANOU
Name:	Constantine Iordanou
Title:	President and Chief Executive Officer

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Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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Exhibit 31.2

Certification of Chief Financial Officer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

I, John D. Vollaro, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Arch Capital Group Ltd.;

2.

3.

4.

a.: Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.: Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c.: Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

a.: All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.: Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:		November 12, 2003
By:		/s/ JOHN D. VOLLARO
Name:		John D. Vollaro
Title:		Executive Vice President, Chief Financial Officer and Treasurer

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Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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Exhibit 32.1

Certification Pursuant to Chapter 63, Title 18 United States Code §1350
As Adopted by Section 906 of the Sarbanes-Oxley Act of 2002
Accompanying Quarterly Report on Form 10-Q of
Arch Capital Group Ltd. for the Fiscal Quarter Ended September 30, 2003

I, Constantine Iordanou, President and Chief Executive Officer of Arch Capital Group Ltd. (the "Company"), certify that the accompanying Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended September 30, 2003 fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934 and the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	Date: November 12, 2003
	/s/ CONSTANTINE IORDANOU Constantine Iordanou President and Chief Executive Officer

A signed original of this written statement required by Section 906 or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Arch Capital Group Ltd. and will be retained by Arch Capital Group Ltd. and furnished to the Securities and Exchange Commission or its staff upon request.

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Exhibit 32.1

Certification Pursuant to Chapter 63, Title 18 United States Code §1350 As Adopted by Section 906 of the Sarbanes-Oxley Act of 2002 Accompanying Quarterly Report on Form 10-Q of Arch Capital Group Ltd. for the Fiscal Quarter Ended September 30, 2003

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Exhibit 32.2

I, John D. Vollaro, Executive Vice President, Chief Financial Officer and Treasurer of Arch Capital Group Ltd. (the "Company"), certify that the accompanying Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended September 30, 2003 fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934 and the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	Date: November 12, 2003
	/s/ JOHN D. VOLLARO John D. Vollaro Executive Vice President, Chief Financial Officer and Treasurer

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Exhibit 32.2

Certification Pursuant to Chapter 63, Title 18 United States Code §1350 As Adopted by Section 906 of the Sarbanes-Oxley Act of 2002 Accompanying Quarterly Report on Form 10-Q of Arch Capital Group Ltd. for the Fiscal Quarter Ended September 30, 2003