Arch Capital Group Ltd., one of the largest of the post-September 11 start-ups founded in Bermuda, wrote net premiums of more than a billion and a quarter dollars in 2002, including $439 million in the fourth quarter alone.

These numbers make Arch Capital one of the most significant insurers in Bermuda.

The company's extraordinary early success stems, in part, from its having been organised before September 11.

Its backers were waiting for the soft market to harden.

When the likely effects of the terrorist attacks were raised, Arch Capital slipped into high gear and has never looked back.

The company reported that net premiums written for the 2002 fourth quarter were $439.2 million, of which the company's reinsurance and insurance operations contributed net premiums written of $236.7 million and $202.5 million, respectively.

For the year ended December 31, 2002, net premiums written were $1.26 billion, of which the company's reinsurance and insurance operations contributed net premiums written of $882.7 million and $378.9 million, respectively.

The company also reported after-tax operating income for the 2002 fourth quarter of $48.6 million, or $0.72 per share, and $95.0 million, or $1.59 per share, for the year ended December 31, 2002.

Operating income is defined by the company as net income or loss before extraordinary items, excluding net realised investment gains or losses, net foreign exchange gains or losses, other income and non-cash compensation charges.

For the 2002 fourth quarter, net income was $43.5 million, or $0.65 per share, including operating income of $48.6 million, or $0.72 per share. Compared to the 2002 third quarter, operating income for the 2002 fourth quarter increased by $26.2 million. Since the company was not fully operational for the majority of 2001, no comparisons have been made with that year.

Due to the level of catastrophic losses during 2002, the company reduced its loss reserves in the reinsurance segment by approximately $12.0 million, after-tax, or $0.18 per share. After-tax non-cash compensation expense included in net income for the 2002 fourth quarter was $8.2 million, or $0.12 per share, of which $4.4 million, or $0.07 per share, related to certain restricted common shares for which the vesting terms had been accelerated during 2002.

Net income in the 2002 fourth quarter also included an extraordinary gain of $3.9 million, or $0.06 per share, resulting from the company's acquisition of Personal Service Insurance Company (PSIC), a non-standard automobile insurer located in Columbus, Ohio. The extraordinary gain represents the excess of the fair value of acquired net assets of $6.4 million over the purchase price of $2.5 million. PSIC is licensed in Ohio and Indiana and was assigned an "A-" (Excellent) rating by A.M. Best.

Net income for the year ended December 31, 2002 was $59.0 million, or $0.99 per share, includes net foreign exchange gains of $2.4 million, or $0.04 per share, and a benefit of $7.4 million, or $0.12 per share, resulting from a reversal of a valuation allowance relating to certain of the company's deferred tax assets. Such reversal was based on the company's restructuring of its US-based insurance underwriting operations and its business plan.

After-tax non-cash compensation expense included in net income for the year ended December 31, 2002 was $48.9 million, or $0.82 per share, of which $39.5 million, or $0.66 per share, related to certain restricted common shares for which the vesting terms had been accelerated during 2002.

For the 2002 fourth quarter, with respect to the company's reinsurance operations, 82.9 percent of net premiums written were generated from pro rata contracts and 17.1 percent were derived from excess of loss treaties. For the year ended December 31, 2002, 59.0 percent of net premiums written were generated from pro rata contracts and 41.0 percent were derived from excess of loss treaties. Of net premiums earned in the reinsurance segment for the 2002 fourth quarter, 53.0 percent were generated from pro rata contracts and 47.0 percent were derived from excess of loss treaties. For the year ended December 31, 2002, 45.8 percent of net premiums earned in the reinsurance segment were generated from pro rata contracts and 54.2 percent were derived from excess of loss treaties.

Typically, pro rata business is written at a higher expense ratio and lower loss ratio than excess of loss business.

The combined ratio of the company's operating units, on a GAAP basis, was 87.6 percent for the 2002 fourth quarter and 90.9 percent for the year ended December 31, 2002. The company's loss ratio was 59.9 percent for the 2002 fourth quarter and 64.8 percent for the year ended December 31, 2002. Net investment income for the 2002 fourth quarter was $15.6 million, compared to $14.9 million in the 2002 third quarter. The growth in net investment income was primarily due to a significant increase in the company's invested assets resulting from cash flow provided by operating activities.

Consolidated cash flow provided by operating activities for the 2002 fourth quarter and the year ended December 1, 2002 was $326.8 million and $669.1 million, respectively. The company's investment portfolio primarily consists of high quality fixed income securities, which had an average Standard & Poor's quality rating of "AA-" and an average duration of 2.1 years at December 31, 2002.

At December 31, 2002 and 2001, the company's consolidated shareholders' equity was approximately $1.4 billion and $1.0 billion, respectively.