Arch MI Releases Fall 2015 Edition of Its Housing and Mortgage Market Review and the Latest Arch MI Risk IndexSM

Arch Mortgage Insurance Company (“Arch MI”), a leading provider of private mortgage insurance and a wholly owned subsidiary of Arch Capital Group Ltd., today released the Fall 2015 edition of its Housing and Mortgage Market Review, which contains the latest Arch MI Risk Index model results. The state- and metro-level risk indices predict the likelihood that home prices in a region will decrease over the next two years, based on recent economic and housing market data.

“The Fall 2015 edition of Arch MI’s Housing and Mortgage Market Review indicates that the national average risk of price declines remains low at 6%, although North Dakota, Wyoming and Alaska’s risks have all elevated due to the decline in energy prices,“ said Dr. Ralph G. DeFranco, Senior Director of Risk Analytics and Pricing at Arch MI. ”Nationwide, home prices should continue to grow faster than inflation in the medium term but states highly dependent on energy will likely experience slowing home price growth, and in a few locations outright home price declines.”

On a state level, North Dakota, Wyoming and Alaska have the highest probabilities of experiencing home price declines in the next two years of 43%, 36% and 35%, respectively, due to the pullback in energy-related income and employment.

• North Dakota tops the list due to a 0.6% decline in total employment over the past three months and the large increase in home prices in recent years that resulted in home prices being overvalued by an estimated 16% relative to incomes.
• Wyoming has the second highest risk score, driven by the state’s dependence on coal mining (coal prices are down about a third in the past year), and a significant decline in oil and gas rigs.
• Alaska has the third highest risk score due to significant portion of state revenue derived from oil and gas production, a large state budget deficit and stalling employment growth (total employment fell 1.8% in the past three months).

Within the Arch MI Risk Index for the 50 most populous Metropolitan Statistical Areas (“MSAs”), Texas has two MSAs in the moderate-risk category: Houston-The Woodlands-Sugarland (40%) and Dallas-Plano-Irving (32%). Three additional Texas MSAs are within the next highest risk category (low risk): Austin-Round Rock (29%), Fort Worth-Arlington (29%) and San Antonio-New Braunfels (29%). Home prices in all of these Texas MSAs are well above their historic long-term trends – approximately 16 percent higher given their historical relationship to incomes, thus affordability remains a primary concern.

Dr. DeFranco will be hosting two webinars to discuss the implications of the latest data during the week of October 12, 2015. Registration is available at archmi.com, under the Resources tab.

More details are available in the Housing & Mortgage Market Review – Fall 2015 edition, available at archmi.com under the News & Resources tab.

https://mi.archcapgroup.com/Portals/1/Documents/hammr/RiskIndex_All_MSA_Fall2015.xlsx

https://mi.archcapgroup.com/Portals/1/Documents/hammr/Actual HPI Relative to Fundamental HPI Fall2015.pdf

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

The Housing & Mortgage Market Review, which presents Arch MI Risk Index^(SM) 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.

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, 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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