New Report Finds Home Prices Likely to Continue Rising, with Possible Exception of a Few Energy-Extraction Areas

Arch MI Spring 2016 Housing and Mortgage Market Review^®
Forecasts Strong Housing Market in Most Metros

WALNUT CREEK, Calif.–(BUSINESS WIRE)–The likelihood of home price declines across the United States over the
next two years remains low at 5 percent, according to Spring 2016 Housing
and Mortgage Market Review 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 Patch” (coal-, oil- or natural
gas- producing) states remain at heightened risk and may experience
slower than normal economic and home price growth.

The report, released today by Arch MI, 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 Spring 2016 edition also features a special report on the potential
impact of rising mortgage interest rates on home sales and prices. The
research examines prior periods of rising mortgage rates and the
resulting effect on the Home Price Index (HPI) and the change in home
sales. Arch MI has also added interactive regional graphs and maps to
their website showing relative over- or undervalued home prices.

“Apart from a subset of energy extraction states, home prices should
rise faster than inflation, thanks to strong fundamentals,” said Dr.
Ralph G. DeFranco, Arch MI’s Chief Economist. ”Positives include strong
affordability, home prices generally below their historical relationship
with incomes, U.S. job growth of more than 2 million jobs a year, and a
low levels of construction relative to growing demand.”

On a state level, Alaska, North Dakota, Wyoming and West Virginia are
currently most at risk of home prices declines. Total employment
continues to weaken in these states, even as home prices continue to
rise. The Energy Patch will experience slower than normal economic and
home price growth, and a few areas may see outright home price declines.

• North Dakota has the highest Arch MI Risk Index value at 47 (47
  percent change of any-sized price decline over the next two years),
  primarily due to a 4 percent drop in year-over-year total employment,
  the largest decline in the nation. North Dakota’s home prices are
  estimated to be overvalued by 22 percent relative to historic norms,
  likely due to the once-roaring oil fracking boom.
• Wyoming has an Arch MI Risk Index value of 40. The state is the
  nation’s largest coal producer and, as recently as late 2014, mining
  jobs represented 10% of the state’s total employment. Since then,
  mining employment has fallen 20% and workers are now leaving the state.
• West Virginia has an Arch MI Risk Index value of 35 and registered the
  nation’s second largest year-over-year decline in total employment
  (-1.5 percent). Housing in the state is weakening, with falling
  existing-home sales and an uptick in foreclosures.
• Alaska’s Arch MI Risk Index value came in at 31. Low energy prices
  have pushed the nation’s most oil-dependent economy into recession and
  government layoffs. In spite of this, home prices and sales have held
  up well to date.
• Louisiana has an Arch MI Risk Index Score of 30. While the
  unemployment rate fell to 5.8 percent, the total employment rate fell
  0.3 percent. Additionally, home sales have fallen precipitously.
• New Mexico registered a score of 30 on the Arch MI Risk Index due to
  the potential risk of recession caused by government- and
  energy-related job losses.
• Oklahoma posted an Arch MI Risk Index Score of 24. The state is less
  diversified than neighboring Texas and total employment is falling
  slightly. Home price growth is below national averages, but
  accelerated in the fourth quarter of 2015.
• Texas registers the lowest risk of the Energy Patch states with an
  Arch MI Risk Index Score of 19, thanks to a more diversified economy.
  Employment in Texas remains positive, but has weakened in recent
  months. Home prices continue to grow faster than the national average,
  leading to heightened risk scores for several Texas communities.

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 (39).
Fort-Worth-Arlington, Texas, registered within the “moderate risk”
category with a Risk Index score of 19. Three other Texas MSAs fell
within the “low risk” category, including San Antonio-New Braunfels,
Austin-Round Rock, Dallas-Plano-Irving.

Dr. DeFranco will be hosting two webinars to discuss the implications of
the latest data during the week of April 11^th, 2016.
Registration is freely available at archmi.com, under the Resources tab.

More details are available in the Housing & Mortgage Market Review
– Spring 2016 edition, available at archmi.com under the News &
Resources tab.

Interactive HPI Charts and Maps

www.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.

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.

Contacts

Arch Mortgage Insurance Company
Bill Horning, 925-658-6193