[June 28, 2016]

New Report Finds Energy States at Highest Risk of Home Price Declines

The likelihood of home price declines across the United States over the next two years remains unchanged from last quarter at only 5 percent, according to the Summer 2016 Housing and Mortgage Market Review (HaMMR) published by Arch Mortgage Insurance Company ("Arch MI"), which contains the latest Arch MI Risk Index^® model results. Despite the low overall risk of home price declines, some areas in the energy-extraction (coal-, oil- or natural gas-producing) states remain at heightened risk and may experience slower than normal economic and home price growth.

"Apart from some weakness in some energy-extraction states, home prices should rise faster than inflation over the next few years due to strong fundamentals," said Dr. Ralph G. DeFranco, Global Chief Economist, Mortgage Services, Arch Capital Services Inc. "Positive fundamentals include strong affordability, healthy job growth (2.7 million net new jobs over the past 12 months, but the pace slowed recently) and net household formations outpacing new supply."

The report, released today by Arch MI and posted on archmi.com/hammr, a leading provider of private mortgage insurance and wholly owned subsidiary of Arch Capital Group Ltd., presents the state- and metro-level Arch MI Risk Index model results of the likelihood that home prices will be lower in two years, based on recent economic and housing market data.

The Summer 2016 edition also features a special report on the out-migration of residents from energy-extraction states including Alaska, Wyoming, West Virginia and New Mexico. Arch MI's Risk Index factors in population trends, including migration in or out of a state, and recent out-migration in these states has contributed to increases in their Risk Index scores. Arch MI has also added interactive regional graphs and maps to its website, showing relative over- or undervalued home prices at archmi.com/HPI-Charts-and-Maps.

On a state level, North Dakota, Wyoming and West Virginia are currently most at risk of home prices declines. The economies in these three states are currently in recession with weakening employment, due to declines in energy-related jobs.

• North Dakota has the highest Arch MI Risk Index value at 52 (indicating a 52 percent chance of a price decline of any magnitude over the next two years), primarily due to a 3.9 percent drop in year-over-year total employment, the largest employment decline in the nation. North Dakota's home prices are estimated to be overvalued by 21 percent relative to historic norms.
• Wyoming has an Arch MI Risk Index value of 46, up from its Risk Index value of 40 in the Spring 2016 report. Wyoming's mining and energy-related jobs continue to contract faster than can be offset by growth in other sectors, such as tourism. Additionally, the number of homes listed for sale in Wyoming is now 20 percent higher than a year ago.
• West Virginia has an Arch MI Risk Index value of 35, unchanged from the Spring 2016 Risk Index value. The state's employment base has been hurt by layoffs in the coal mining industry and state-wide employment has decreased 1.5 percent from one year ago.

Within the Arch MI Risk Index values for the 50 most populous Metropolitan Statistical Areas ("MSAs"), only one MSA registered in the "elevated risk" category: Houston-The Woodlands-Sugarland, TX, with a Risk Index value of 39. Fort-Worth-Arlington, TX, registered within the "moderate risk" category with a Risk Index value of 16.

Dr. DeFranco will be hosting two webinars discussing the implications of the latest Housing Review during the week of June 27^th, 2016. Registration is freely available at archmi.com/hammr.

Arch MI has also announced a new interactive feature on its website, where visitors can see how their area's home values compared against an estimate of fundamental values. Visit archmi.com/hammr, click on the HPI (News - Alert) charts link to see the House Price Index at the top, then click either the "State" or "MSA" tab; on the chart's drop-down menu, choose the state or the city you want to compare.

Interactive HPI Charts and Maps

archmi.com/HPI-Charts-and-Maps

About Arch MI's Housing & Mortgage Market Review and Risk Index

The Housing & Mortgage Market Review, which presents Arch MI Risk Index^® results, is published quarterly by Arch Mortgage Insurance Company. The Risk Index is a proprietary statistical model that measures home price risk by estimating the probability that home prices in a state or one of the nation's 401 largest metropolitan statistical areas (MSAs) will be lower in two years. For example, a score of 25 indicates a 25 percent chance the FHFA All-Transactions Regional Housing Price Index (HPI) will be lower two years from the date of the input data release. The Arch MI Risk Index weights various local economic and housing market factors, such as affordability, unemployment rates, economic growth rates, net migration, housing starts, etc., based on a statistical model built on data going back to the early 1980s. It estimates the likelihood of seeing negative home prices, and does not indicate the size of any declines. The Arch MI Risk Index is updated after each quarterly release of the FHFA All-Transactions Regional HPI. The complete current Index can be reviewed at archmi.com/hmmr.

ABOUT ARCH MORTGAGE INSURANCE COMPANY

Arch Capital Group Ltd.'s U.S. mortgage insurance operation, Arch MI, is a leading provider of private insurance covering mortgage credit risk. Headquartered in Walnut Creek, CA (News - Alert), Arch MI's mission is to protect lenders against credit risk, while extending the possibility of responsible homeownership to qualified borrowers. Arch MI's flagship mortgage insurer, Arch Mortgage Insurance Company, is licensed to write mortgage insurance in all 50 states, the District of Columbia, and Puerto Rico. For more information, please visit archmi.com.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. This release or any other written or oral statements made by or on behalf of Arch Capital Group Ltd. and its subsidiaries 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 release are forward-looking statements.

Forward-looking statements can generally be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe" or "continue" or their negative or variations or similar terminology. Forward-looking statements involve our current assessment of risks and uncertainties. Actual events and results may differ materially from those expressed or implied in these statements. A non-exclusive list of the important factors that could cause actual results to differ materially from those in such forward-looking statements includes the following: adverse general economic and market conditions; increased competition; pricing and policy term trends; fluctuations in the actions of rating agencies and our ability to maintain and improve our ratings; investment performance; the loss of key personnel; the adequacy of our loss reserves, severity and/or frequency of losses, greater than expected loss ratios and adverse development on claim and/or claim expense liabilities; greater frequency or severity of unpredictable natural and man-made catastrophic events; the impact of acts of terrorism and acts of war; changes in regulations and/or tax laws in the United States or elsewhere; our ability to successfully integrate, establish and maintain operating procedures as well as integrate the businesses we have acquired or may acquire into the existing operations; changes in accounting principles or policies; material differences between actual and expected assessments for guaranty funds and mandatory pooling arrangements; availability and cost to us of reinsurance to manage our gross and net exposures; the failure of others to meet their obligations to us; and other factors identified in our filings with the U.S. Securities and Exchange Commission.

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. 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. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

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