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» VISIT US ONLINE @ DSNEWS.COM 75 that high-cost, higher-tax areas will see price declines as a result of the legislation's new restrictions on mortgage interest and state and local taxes, led by New Jersey (-6.2 percent), the District of Columbia (-4.8 percent), and New York (-4.8 percent). While such declines are possible, we believe the strength of the current housing market will prevent that large of an outright price decline. In addition, the rent vs. buy calculation changes according to income. For example, a family earning $50,000 a year pays less in taxes and probably doesn't itemize their taxes, so buying is slightly more favorable. However, for a family earning $150,000 a year, the rent level that would tip them in favor of buying is now 25 percent higher. e bottom line is that the benefits of homeownership in comparison to renting are now less favorable for housing, at least for many upper-middle-class households. e changes in the tax law are particularly bad for higher-cost areas because of the larger loss of allowable deductions. It would not be surprising to see increased demand for smaller, cheaper housing and lower demand for larger, more expensive housing. is is likely to result in a lower homeownership rate over time relative to what it would have been. Nearly every housing market is still likely to experience positive home price growth over the next two years, but some high-tax areas, such as Connecticut, New Jersey, New York City, and Chicago may see minor price declines because of the tax changes. We believe strong economic and housing market conditions, such as extremely low unemployment rates and low interest rates, more than offset the negative tax changes. CAUTIONARY STATEMENT: e Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward−looking statements. is 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 nonexclusive 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 and 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. e 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. "It would not be surprising to see increased demand for smaller, cheaper housing and lower demand for larger, more expensive housing. This is likely to result in a lower homeownership rate over time relative to what it would have been." COVER STORY INDUSTRY INSIGHT INDUSTRY INSIGHT INDUSTRY INSIGHT INDUSTRY INSIGHT

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