Document:

Exhibit 10.15

                              EMPLOYMENT AGREEMENT

     EMPLOYMENT AGREEMENT ("Agreement") dated as of December 20, 2001 between
Arch Capital Group Ltd., a Bermuda corporation ("Parent"), Arch Capital Group
(U.S.) Inc., a Delaware corporation (the "Company" and, together with Parent,
collectively referred to herein as the "Companies"), and Constantine Iordanou
(the "Executive").

     The parties hereto agree as follows:

                                    ARTICLE 1

                                   DEFINITIONS

     SECTION 1.01. Definitions. For purposes of this Agreement, the following
terms have the meanings set forth below:

     "Base Salary" has the meaning set forth in Section 4.01.

     "Cause" means (a) theft or embezzlement by the Executive with respect to
the Companies or their Subsidiaries; (b) the Executive's conviction of, or plea
of nolo contendere to, any felony or any misdemeanor involving moral turpitude;
(c) willful or prolonged absence from work by the Executive (other than by
reason of disability due to physical or mental illness) or willful failure or
refusal by the Executive to perform his duties and responsibilities, without the
same being corrected within thirty (30) days after being given written notice
thereof; (d) continued and habitual use of alcohol by the Executive to an extent
which materially impairs the Executive's performance of his duties, without the
same being corrected within thirty (30) days after being given written notice
thereof; (e) the Executive's use of illegal drugs, without the same being
corrected within thirty (30) days after being given written notice thereof; or
(f) the material breach by the Executive of any of the provisions contained in
this Agreement, including, without limitation, Section 3.01 and Section 11.01,
without the same (other than in the case of Section 11.01) being corrected
within thirty (30) days after being given written notice thereof.

     "Confidential Information" means information that is not generally known to
the public and that was or is used, developed or obtained by the Companies or
their Subsidiaries in connection with their business. It shall not include
information (a) required to be disclosed by court or administrative order; (b)
lawfully obtainable from other sources or which is in the public domain through
no fault of the Executive; or (c) the disclosure of which is consented to in
writing by the Companies.

     "Date of Termination" has the meaning set forth in Section 5.07.

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     "Employment Period" has the meaning set forth in Section 2.01.

     "Good Reason" means, without the Executive's written consent, (a) any
material diminution of the duties or responsibilities of the Executive, without
the same being corrected within thirty (30) days after being given written
notice thereof; (b) any material breach by the Companies of the provisions
contained in this Agreement, without the same being corrected within thirty (30)
days after being given written notice thereof; or (c) upon the departure of Mr.
Paul Ingrey from employment with Arch Reinsurance Ltd. and its affiliates, the
Executive is not promoted to the position of chief executive officer of the
worldwide insurance and reinsurance businesses of the Parent and its
Subsidiaries, without the same being corrected within thirty (30) days after the
Executive gives written notice thereof, but only if the Executive terminates his
employment with the Companies for any reason (other than by reason of death or
Permanent Disability) within eighteen (18) months from the date of such
departure by Mr. Ingrey.

     For purposes of clause (a), a material diminution of duties or
responsibilities shall include, without limitation, either of the following: (i)
a requirement that the Executive report to anyone other than Mr. Paul Ingrey,
the chief executive officer of the Parent and the Board of Directors of the
Companies; or (ii) if, following an event or series of events where any Person
or group of related Persons under common control that engages in a substantial
property and casualty insurance or reinsurance business (the "Acquiror"), other
than a Permitted Person, are or become the "beneficial owner" (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), directly or indirectly, of voting securities of the Parent representing
more than 50% of the total voting power of all then outstanding voting
securities of the Parent, the Executive is no longer the chief executive officer
(other than during the period that Paul Ingrey is the chief executive officer)
of the worldwide insurance and reinsurance businesses of the parent/subsidiary
group then including the Parent, the Acquiror and their Subsidiaries. For
purposes of this paragraph, "Permitted Persons" means (A) the Parent; (B) any
Related Party; (C) Hellman & Friedman or any of its subsidiaries or investment
funds managed or controlled by Hellman & Friedman or any of its subsidiaries;
(D) Warburg Pincus or any of its subsidiaries or any investment funds managed or
controlled by Warburg Pincus or any of its subsidiaries; or (E) any group (as
defined in Rule 13b-3 under the Exchange Act) comprised of any or all of the
foregoing; and "Related Party" means (A) a majority-owned subsidiary of the
Parent; (B) a trustee or other fiduciary holding securities under an employee
benefit plan of the Parent or any majority-owned subsidiary of the Parent; or
(C) any entity, 50% or more of the voting power of which is owned directly or
indirectly by the stockholders of the Parent in substantially the same
proportion as their ownership of voting securities of the Parent immediately
prior to the transaction.

     "Intellectual Property" has the meaning set forth in Section 7.01.

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     "Notice of Termination" has the meaning set forth in Section 5.06.

     "Noncompetition Period" has the meaning set forth in Section 9.01.

     "Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, an estate, a trust, a
joint venture, an unincorporated organization or a governmental entity or any
department, agency or political subdivision thereof.

     "Permanent Disability" means those circumstances where the Executive is
unable to continue to perform the usual customary duties of his assigned job or
as otherwise assigned in accordance with the provisions of this Agreement for a
period of six (6) months in any twelve (12) month period because of physical,
mental or emotional incapacity resulting from injury, sickness or disease.

     "Reimbursable Expenses" has the meaning set forth in Section 4.04.

     "Subsidiary" or "Subsidiaries" means, with respect to any Person, any
corporation, partnership, limited liability company, association or other
business entity of which (a) if a corporation, fifty (50) percent or more of the
total voting power of shares of stock entitled (without regard to the occurrence
of any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by that
Person or one or more of the other Subsidiaries of that Person or combination
thereof; or (b) if a partnership, limited liability company, association or
other business entity, fifty (50) percent or more of the partnership or other
similar ownership interest thereof is at the time owned or controlled, directly
or indirectly, by any Person or one or more Subsidiaries of that Person or a
combination thereof. For purposes of this definition, a Person or Persons will
be deemed to have a fifty (50) percent or more ownership interest in a
partnership, limited liability company, association or other business entity if
such Person or Persons are allocated fifty (50) percent or more of partnership,
limited liability company, association or other business entity gains or losses
or control the managing director or member or general partner of such
partnership, limited liability company, association or other business entity.

                                    ARTICLE 2

                                   EMPLOYMENT

     SECTION 2.01. Employment. Subject to the receipt on or before December 21,
2001 by the Company of a written letter of resignation from the Executive to his
prior employer or a written notice of termination from such prior employer to
the Executive which, in either case, is effective on or before December 31,
2001, the Company shall employ the Executive, and the Executive shall accept
employment with the Company, upon the terms and conditions set

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forth in this Agreement for the period beginning on January 1, 2002 (the date of
the beginning of such period to be referred to herein as the "Start Date") and
ending as provided in Section 5.01 (the "Employment Period"). If the Executive
fails to satisfy the condition set forth in the preceding sentence or fails to
commence the performance of his duties and responsibilities hereunder by January
2, 2002, he shall forfeit all rights hereunder and incur no obligations
hereunder; provided, that any breach of the requirements described in this
sentence shall be disregarded unless notice of such breach is provided to the
Executive by January 31, 2002.

                                    ARTICLE 3

                               POSITION AND DUTIES

     SECTION 3.01. Position and Duties. During the Employment Period, the
Executive shall serve as President and Chief Executive Officer of the Company
and shall be responsible for the general management and oversight of the United
States insurance operations of the Company and its United States affiliates. In
such capacity, the Executive shall have such responsibilities, powers and duties
as may from time to time be prescribed by the Board of Directors of the Company;
provided that such responsibilities, powers and duties are substantially
consistent with those customarily assigned to individuals serving in such
position at comparable companies. During the Employment Period the Executive
shall devote substantially all of his working time and efforts to the business
and affairs of the Companies and their Subsidiaries. The Executive shall not
directly or indirectly render any services of a business, commercial or
professional nature to any other person or for-profit organization not related
to the business of the Companies or their Subsidiaries, whether for compensation
or otherwise, without prior written consent of the Parent. Notwithstanding the
foregoing, Executive may continue to serve as a non-employee director of the
Insurance Service Office (or any successor thereto) and a reasonable number of
non-profit organizations so long as such service does not interfere with the
performance of the Executive's duties hereunder. If, after two years from the
date hereof, the Board of Directors of Parent determines that it is necessary
for Executive to provide his services to Parent and its Subsidiaries from
offices located in Bermuda, Executive would agree to relocate to Bermuda to
provide such services, and Parent would agree to provide Executive benefits
customarily provided to similarly situated senior executives residing in
Bermuda. Except as indicated in the preceding sentence and for the normal travel
requirements of his position, Executive's principal place of business shall be
located in the New York Metropolitan area, including New York City, Westchester
County, New York, Long Island, Fairfield County, Connecticut, and Morris, Essex,
Bergen and other locations in northern New Jersey.

     SECTION 3.02. Parent Board Seat. During the Employment Period, Parent shall
use its best efforts to cause the Executive to be elected to the Board of
Directors of Parent. In the event that the Executive's employment with the
Company terminates for any reason, the Ex-

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ecutive shall resign from the Board of Directors of Parent and any committee of
such Board of Directors on which he serves. In such capacity as a Director of
Parent, the Executive will provide oversight and stewardship for Parent's
non-United States insurance and reinsurance subsidiaries.

                                    ARTICLE 4

                            BASE SALARY AND BENEFITS

     SECTION 4.01. Base Salary. During the Employment Period, the Executive's
base salary will be $1,000,000 per annum (the "Base Salary"). The Base Salary
will be payable bi-monthly on the 15th and last working day of each month in
arrears. Annually during the Employment Period, the Board of Directors of the
Company shall review with the Executive his job performance and compensation,
and, commencing with calendar year 2004, if deemed appropriate by the Board of
Directors of the Company, in its discretion, the Executive's Base Salary may be
increased.

     SECTION 4.02. Bonuses. In addition to the Base Salary, the Executive shall
participate in an annual bonus plan on terms established from time to time by
the Board of Directors of the Company, in consultation with the senior
executives of the Company, including the Executive. The Executive's target
annual bonus will be 100% of his Base Salary.

     SECTION 4.03. Benefits. In addition to the Base Salary, and any bonuses
payable to the Executive pursuant to this Agreement, the Executive shall be
entitled to the following benefits during the Employment Period:

          (a) such major medical, life insurance and disability insurance
     coverage as is, or may during the Employment Period, be provided generally
     for other senior executive officers of the Company as set forth from time
     to time in the applicable plan documents;

          (b) four (4) weeks of paid vacation annually during the Employment
     Period; and

          (c) benefits under any plan or arrangement available generally for the
     senior executive officers of the Company, subject to and consistent with
     the terms and conditions and overall administration of such plans as set
     forth from time to time in the applicable plan documents.

     SECTION 4.04. Expenses. The Company shall reimburse the Executive for all
reasonable expenses incurred by him in the course of performing his duties under
this Agreement which are consistent with the Company's policies in effect from
time

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to time with respect to travel, entertainment and other business expenses
("Reimbursable Expenses"), subject to the Companies' requirements with respect
to reporting and documentation of expenses. If the Executive relocates to
Bermuda, any private aircraft owned or leased by the Companies at such time (if
any), or such other air transportation as is reasonably acceptable to the
Executive, shall be made available to him upon his reasonable request and at the
Company's expense for travel between Bermuda and the New York Metropolitan area.

     SECTION 4.05. Stock Options and Restricted Stock. On the Start Date, Parent
shall grant to the Executive an option to acquire 425,000 shares of Parent's
common stock at an exercise price equal to $23.50 per share. The other terms of
the stock option shall be as set forth in the form of the Stock Option Agreement
attached hereto as Exhibit A. On the Start Date, Parent shall also grant to the
Executive 325,000 shares of restricted common stock of Parent on the terms set
forth in the form of Restricted Stock Agreement attached hereto as Exhibit B.
The stock option and restricted stock awards provided for in this Section 4.05
are made as an inducement essential to the Executive's entering into the
Agreement. In addition, the Executive shall be eligible to participate in
Parent's Long Term Incentive and Share Award Plans (and any similar plan adopted
by the Parent) under which awards of options or other stock-based awards may be
granted by the Board of Directors of Parent. In any year during the period
extending through December 31, 2003, the Executive shall be entitled to receive
not less than 75% of the largest award of restricted shares and stock options
granted to any continuing member of management of the Companies in such year
(for the avoidance of doubt, this provision does not apply to any stock-based
awards made to any new hire as an inducement essential to the initial employment
of such individual).

     SECTION 4.06. Signing Bonus Restricted Stock Grant. On the Start Date,
Parent shall grant to the Executive 106,383 shares of restricted common stock of
Parent on the terms set forth in the form of the Restricted Stock Agreement
attached hereto as Exhibit B. The restricted stock award provided for in this
Section 4.06 is made as an inducement essential to the Executive's entering into
the Agreement.

     SECTION 4.07. Review of Benefit Plans. As soon as practicable after the
Start Date, the Companies shall appoint a committee consisting of members of the
Board of Directors of Parent and senior management of the Companies, including
the Executive, to review the adequacy of the existing company-sponsored plans
providing group life, disability and pension benefits.

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                                    ARTICLE 5

                              TERM AND TERMINATION

     SECTION 5.01. Term. The Employment Period will terminate on the fifth
anniversary of the Start Date unless otherwise agreed by the parties; provided,
that (a) the Employment Period shall terminate prior to such date upon the
Executive's death or Permanent Disability, and (b) the Employment Period may be
terminated at any time by the Company upon 30 days' prior written notice to the
Executive or by the Executive upon 60 days' prior written notice to the Company.
In addition, this Agreement will be automatically extended on the same terms and
conditions for successive one year periods following the original five (5) year
term until either the Company or the Executive, at least twelve (12) months
prior to the expiration of the original term or any extended term, shall give
written notice of their intention not to renew the Agreement (it being
understood that any such notice by the Company or the Executive shall not be
considered a termination of employment by the Company or the Executive for
purposes of Section 5.03).

     SECTION 5.02. Termination Due to Death or Permanent Disability. If the
Employment Period shall be terminated due to the death of the Executive, the
Executive's estate or legal representative shall be paid solely (except as
provided in Section 5.05 below) (i) a portion of the bonus (if any) that would
have been payable to the Executive for the year of termination as determined by
the Board of Directors in accordance with the annual bonus plan, prorated for
the portion of the bonus year during which he was employed by the Company, and
(ii) an amount equal to two times the sum of the Base Salary and the target
annual bonus set forth in Section 4.02. Such amount will be payable in a lump
sum as soon as practicable following termination of the Executive's employment
and shall be offset by any proceeds received by the Executive's estate or legal
representative from any insurance coverages provided by the Company or any of
its affiliates. If the Employment Period shall be terminated due to the
Permanent Disability of the Executive, the Executive (or his legal
representative) shall be paid solely (except as provided in Section 5.05 below)
(i) a portion of the bonus (if any) that would have been payable to the
Executive for the year of termination as determined by the Board of Directors in
accordance with the annual bonus plan, prorated for the portion of the bonus
year during which he was employed by the Company, and (ii) at a rate equal to
40% of the Base Salary on a monthly basis during the period of the Executive's
Permanent Disability up to a maximum period as set forth in the Company's
long-term disability plan, offset by any proceeds received by the Executive or
his legal representative from any insurance coverages provided by the Company or
any of its affiliates. In addition, promptly following any such termination, the
Executive (or his estate or legal representative) shall also be reimbursed all
Reimbursable Expenses incurred by the Executive prior to such termination.

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     SECTION 5.03. Termination for Good Reason or Without Cause. If the
Employment Period shall be terminated (a) by the Executive for Good Reason or
(b) by the Company not for Cause, subject to reduction as set forth in Section
12.01, the Executive shall be paid solely (except as provided in Section 5.05
below) (i) a portion of the bonus (if any) that would have been payable to the
Executive for the year of termination as determined by the Board of Directors in
accordance with the annual bonus plan, prorated for the portion of the bonus
year during which he was employed by the Company, and (ii) an amount equal to
two times the sum of the Base Salary and the target annual bonus set forth in
Section 4.02. Such amount will be payable in equal monthly installments for a
period of eighteen (18) months commencing on the first month anniversary of the
Date of Termination. In addition, promptly following any such termination, the
Executive shall also be reimbursed all Reimbursable Expenses incurred by the
Executive prior to such termination.

     SECTION 5.04. Termination for Cause or Other Than Good Reason. If the
Employment Period shall be terminated (a) for Cause, or (b) as a result of the
Executive's resignation or leaving of his employment, other than for Good
Reason, the Executive shall be entitled to receive solely the Base Salary
through the Date of Termination and reimbursement of all Reimbursable Expenses
incurred by the Executive prior to such termination.

     SECTION 5.05. Benefits. If the Employment Period is terminated as a result
of a termination of employment as specified in Section 5.02 or 5.03, the
Executive and his spouse shall continue to receive major medical insurance
coverage benefits from the Company's plan in effect at the time of such
termination, at the expense of the Company, for a period equal to the lesser of
(x) eighteen (18) months following the Date of Termination or (y) if applicable,
until the Executive is provided by another employer with benefits substantially
comparable (with no preexisting condition limitations) to the benefits provided
by such plan. The statutory health care continuation coverage period under
Section 4980B of the Internal Revenue Code of 1986, as amended (the "Code"),
will commence at the end of such period. In addition, if the Employment Period
is terminated as a result of a termination of employment as specified in Section
5.02 or 5.03, any unvested stock options and any unvested shares of restricted
stock of Parent granted to the Executive under Section 4.05 and Section 4.06
shall vest in accordance with the terms of the applicable award agreements.
Except as otherwise required by mandatory provisions of law, all of the
Executive's rights to fringe and other benefits under this Agreement or other
plans or arrangements of the Companies, if any, accruing after the termination
of the Employment Period as a result of a termination of employment as specified
in Section 5.04 will cease upon such termination; provided, that the foregoing
shall not apply with respect to the Executive's rights as set forth in any
deferred compensation plans maintained by the Company or its affiliates, and
under Section 11.03.

     SECTION 5.06. Notice of Termination. Any termination by the Companies or by
the Executive for any reason shall be communicated by written Notice of
Termination to the other

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party hereto. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of employment under the
provision indicated.

     SECTION 5.07. Date of Termination. "Date of Termination" shall mean (a) if
the Employment Period is terminated as a result of a Permanent Disability, five
(5) days after a Notice of Termination is given, (b) if the Employment Period is
terminated for Good Reason, the date specified in the Notice of Termination, (c)
if the Employment Period is terminated for Cause, the date designated by the
Company in the Notice of Termination, and (d) if the Employment Period is
otherwise terminated under Section 5.01, after the applicable notice period
specified in such section has elapsed.

                                    ARTICLE 6

                            CONFIDENTIAL INFORMATION

     SECTION 6.01. Nondisclosure and Nonuse of Confidential Information. The
Executive will not disclose or use at any time during or after the Employment
Period any Confidential Information of which the Executive is or becomes aware,
whether or not such information is developed by him, except to the extent that
such disclosure or use is directly related to and required by the Executive's
performance of duties assigned to the Executive pursuant to this Agreement.

                                    ARTICLE 7

                              INTELLECTUAL PROPERTY

     SECTION 7.01. Ownership of Intellectual Property. In the event that the
Executive as part of his activities on behalf of the Companies generates,
authors or contributes to any invention, design, new development, device,
product, method of process (whether or not patentable or reduced to practice or
comprising Confidential Information), any copyrightable work (whether or not
comprising Confidential Information) or any other form of Confidential
Information relating directly or indirectly to the business of the Companies as
now or hereinafter conducted (collectively, "Intellectual Property"), the
Executive acknowledges that such Intellectual Property is the sole and exclusive
property of the Companies and hereby assigns all right title and interest in and
to such Intellectual Property to the Companies. Any copyrightable work prepared
in whole or in part by the Executive during the Employment Period will be deemed
"a work made for hire" under Section 201(b) of the Copyright Act of 1976, as
amended, and the Companies will own all of the rights comprised in the copyright
therein. The Executive will cooperate with the Companies to protect the
Companies' interests in and rights to such Intellectual Property (including
providing reasonable assistance in securing pat-

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ent protection and copyright registrations and executing all documents as
reasonably requested by the Companies, whether such requests occur prior to or
after termination of Executive's employment hereunder).

                                    ARTICLE 8

              DELIVERY OF MATERIALS UPON TERMINATION OF EMPLOYMENT

     SECTION 8.01. Delivery of Materials upon Termination of Employment. As
requested by the Companies, from time to time and upon the termination of the
Executive's employment with the Companies for any reason, the Executive will
promptly deliver to the Companies all copies and embodiments, in whatever form
or medium, of all Confidential Information or Intellectual Property in the
Executive's possession or within his control (including written records, notes,
photographs, manuals, notebooks, documentation, program listings, flow charts,
magnetic media, disks, diskettes, tapes and all other materials containing any
Confidential Information or Intellectual Property) irrespective of the location
or form of such material and, if requested by the Companies, will provide the
Companies with written confirmation that all such materials have been delivered
to the Companies.

                                    ARTICLE 9

                       NONCOMPETITION AND NONSOLICITATION

     SECTION 9.01. Noncompetition. The Executive acknowledges that during his
employment with the Company, he will become familiar with trade secrets and
other Confidential Information concerning the Companies, their Subsidiaries and
their respective predecessors, and that his services will be of special, unique
and extraordinary value to the Companies. In addition, in consideration of the
rights to the payments set forth in Article 5 of this Agreement, the Executive
hereby agrees that at any time during the Employment Period, and for a period
ending eighteen (18) months after the termination of Executive's employment (the
"Noncompetition Period"), he will not directly or indirectly own, manage,
control, participate in, render services (as an employee, consultant or in any
other capacity) for or in any manner engage in any business competing with the
insurance and reinsurance businesses of the Companies or their Subsidiaries as
such businesses exist as of the termination of Executive's employment, within
any geographical area in which the Companies or their Subsidiaries engage in
such businesses; provided, however, that, if such termination is by the Company
not for Cause or by the Executive for Good Reason under Section 5.03, the
Executive shall be bound by this Section 9.01 only to extent that the Company
provides to the Executive the benefits set forth in Section 5.03 and Section
5.05; provided, further, that, if such termination is due to (i) the expiration
of the original five year term of this Agreement or any extended term or (ii) by
reason of Executive's resignation or leaving of his employment other than for

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Good Reason, the Executive shall be bound by this Section 9.01 for the period of
up to eighteen (18) months that the Company, at its sole option, within thirty
(30) days following such termination, elects in writing to (a) pay the Executive
an amount equal to two times the sum of the Base Salary and the target annual
bonus set forth in Section 4.02 (such amount to be payable in equal monthly
installments over such period), and (b) provide the benefits set forth in
Section 5.05. It shall not be considered a violation of this Section 9.01 for
the Executive to be a passive owner of not more than 2% of the outstanding stock
of any class of a corporation which is publicly traded, so long as the Executive
has no active participation in the business of such corporation. In addition, it
shall not be considered a violation of this Section 9.01 for the Executive to
provide services in a non-managerial capacity to a non-risk bearing entity (for
example, as an insurance broker or analyst).

     SECTION 9.02. Nonsolicitation. The Executive hereby agrees that (a) during
the Employment Period and for a period of eighteen (18) months after the
termination of Executive's employment (the "Nonsolicitation Period") the
Executive will not, directly or indirectly through another entity, induce or
attempt to induce any employee of the Companies or their Subsidiaries to leave
the employ of the Companies or their Subsidiaries, or in any way interfere with
the relationship between the Companies or their Subsidiaries and any employee
thereof and (b) during the Nonsolicitation Period, the Executive will not induce
or attempt to induce any customer, supplier, client, insured, reinsured,
reinsurer, broker, licensee or other business relation of the Companies or their
Subsidiaries to cease doing business with the Companies or their Subsidiaries.

     SECTION 9.03. Enforcement. If, at the enforcement of Sections 9.01 or 9.02,
a court holds that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances will be
substituted for the stated duration, scope or area and that the court will be
permitted to revise the restrictions contained in this Article 9 to cover the
maximum duration, scope and area permitted by law.

                                   ARTICLE 10

                                EQUITABLE RELIEF

     SECTION 10.01. Equitable Relief. The Executive acknowledges that (a) the
covenants contained herein are reasonable, (b) the Executive's services are
unique, and (c) a breach or threatened breach by him of any of his covenants and
agreements with the Companies contained in Sections 6.01, 7.01, 8.01, 9.01 or
9.02 could cause irreparable harm to the Companies for which they would have no
adequate remedy at law. Accordingly, and in addition to any remedies which the
Companies may have at law, in the event of an actual or threatened breach by the
Executive of his covenants and agreements contained in Sections

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6.01, 7.01, 8.01, 9.01 or 9.02, the Companies shall have the absolute right to
apply to any court of competent jurisdiction for such injunctive or other
equitable relief as such court may deem necessary or appropriate in the
circumstances, and the Companies will be entitled to enforce such rights
specifically, without posting a bond or other security.

                                   ARTICLE 11

                       REPRESENTATIONS; CERTAIN COVENANTS

     SECTION 11.01. Executive Representations. The Executive hereby represents
and warrants to the Companies that (a) the execution, delivery and performance
of this Agreement by the Executive does not and will not conflict with, breach,
violate or cause a default under any contract, agreement, instrument, order,
judgment or decree to which the Executive is a party or by which he is bound,
(b) the Executive is not a party to or bound by any noncompetition agreement
with any other Person and (c) upon the execution and delivery of this Agreement
by the Companies, this Agreement will be the valid and binding obligation of the
Executive.

     SECTION 11.02. Companies Representations. Each Company hereby represents
and warrants to the Executive that (a) it has all necessary corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder and (b) the execution and delivery of this Agreement by each Company
has been duly and validly authorized by all necessary corporate action. The
Parent also agrees to use reasonable best efforts to maintain an effective
Registration Statement on Form S-8 (or any similar successor form) covering the
issuance to the Executive of (i) the shares of the Parent's common stock upon
the exercise of the option referred to in Section 4.05 (the "Option Shares") and
(ii) the shares of restricted common stock of the Parent referred to in Section
4.05 and Section 4.06 (together with the Option Shares, the "Shares"). Parent
hereby represents and warrants that, on the date hereof, the Shares are
registered under the Securities Act of 1933, as amended, on a currently
effective Form S-8 Registration Statement.

     SECTION 11.03. General Indemnification. The Parent and Company agree that
if the Executive is made a party, or is threatened to be made a party, to any
pending or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative (each, a "Proceeding"), by reason of the fact
that he is or was a director, officer or employee of the Company or the Parent
or is or was serving at the request of the Company as a director, officer,
member, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, the Executive shall be indemnified and held harmless by the Companies to
the fullest extent permitted or authorized by applicable law and the Companies'
certificate of incorporation or bylaws, against all cost, expense, liability and
loss reasonably incurred or suffered by the Executive in connection

<PAGE>
                                      -13-

therewith, including, without limitation, attorneys' fees and disbursements and
judgments, and the Companies shall advance expenses in connection therewith, to
the fullest extent permitted or authorized by applicable law and the Companies'
certificate of incorporation or bylaws. Such indemnification shall continue as
to the Executive even if he has ceased to be a director, member, employee or
agent of the Company or other entity and shall inure to the benefit of the
Executive's heirs, executors and administrators. The Company agrees to continue
and maintain a directors' and officers' liability insurance policy covering the
Executive to the extent the Company provides such coverage for its other
executive officers.

     SECTION 11.04. Legal Fees. The Company shall reimburse the Executive for
all reasonable expenses incurred by him for legal advice in finalizing the
Agreement, subject to a maximum of $15,000. In addition, the Company agrees to
pay, upon written demand therefor by the Executive, all legal fees which the
Executive may reasonably incur as a result of any dispute or contest by or with
the Companies regarding the validity or enforceability of, or liability under,
any provision of this Agreement or otherwise in connection with the enforcement
of this Agreement, unless the Company substantially prevails on all material
causes of action in the dispute or contest.

                                   ARTICLE 12

                           CERTAIN ADDITIONAL PAYMENTS

     SECTION 12.01. Anything in this Agreement to the contrary notwithstanding,
in the event it shall be determined that any payment, award, benefit or
distribution (including, without limitation, the acceleration of any payment,
award, distribution or benefit), by the Company or any of its affiliates to or
for the benefit of the Executive (whether pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Article 12) (as reduced as set forth in this Section 12.01,
a "Payment") would be subject to the excise tax imposed by Section 4999 of the
Code or any corresponding provisions of state or local tax law, or any interest
or penalties are incurred by the Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive shall be paid
an additional payment (a "Gross-Up Payment") in an amount such that after
payment by the Executive of all taxes (including any Excise Tax, and any
federal, state and local income tax or employment tax) imposed upon the Gross-Up
Payment and any interest or penalties imposed with respect to such taxes, the
Executive retains from the Gross-Up Payment an amount equal to the Excise Tax
imposed upon the Payments; provided that, the Payments, in the aggregate, shall
be reduced (subject to the following sentences of this section) by an amount
equal to the lesser of: (x) the smallest amount possible such that no Payment
would be treated as a "parachute payment" under Section 280G of the Code; and
(y) $500,000, $1,000,000, $1,500,000, $2,000,000, and $2,500,000 for Payments
that become payable as a

<PAGE>
                                      -14-

result of a termination of employment occurring in calendar years 2002, 2003,
2004, 2005 and 2006, respectively, even if actually paid in later years. The
reduction of the Payments, if applicable, shall be made by first reducing the
payments under Section 5.03, unless an alternative method of reduction is
elected by the Executive prior to the effective date of the event that triggers
the Payments. No reduction shall be made with respect to any Payment received or
otherwise required to be included in income for federal income tax purposes
prior to such event. Notwithstanding anything to the contrary in the three
preceding sentences, if, without regard to any Gross-Up Payment and without any
reduction in Payments, the net amount retained by the Executive, after
subtracting from the Payments otherwise to be made all taxes imposed thereon
(including the Excise Tax), would exceed the after-tax amount that would be
retained by the Executive with the Gross-Up Payment and after the reduction
computed above, then no reduction in Payments shall be made and no Gross-Up
Payment shall be made. For purposes of determining the amount of the Gross-Up
Payment, the Executive shall be deemed to pay federal income tax and employment
taxes at the highest marginal rates of federal income and employment taxation in
the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of the Executive's residence (or, if greater, the state and locality in
which the Executive is required to file a nonresident income tax return with
respect to the Payment) on the date of termination of employment, net of the
reduction in federal income taxes that may be obtained from the deduction of
such state and local taxes. In addition, no reduction shall be made (and no
Excise Tax shall be withheld) with respect to any Payment if the Executive
elects (i) to provide to the Company an opinion of counsel reasonably acceptable
to the Company to the effect that no Excise Tax should be due with respect to
the Payments and (ii) to release the Company from any liability under this
Article 12.

     SECTION 12.02. Subject to the provisions of Section 12.03, all
determinations required to be made under this Article 12, including the
determination of whether a Gross-Up Payment is required and of the amount of any
such Gross-up Payment, shall be made by a "Big 5" accounting firm (other than
the regular outside accounting firm retained by the Company) selected by the
Company and agreed to by the Executive, which agreement shall not be
unreasonably withheld (the "Accounting Firm"), which Accounting Firm shall
provide detailed supporting calculations both to the Company and the Executive
within 15 business days after the receipt of notice from the Company that the
Executive has received a Payment, or such earlier time as is requested by the
Company. The initial Gross-Up Payment, if any, as determined pursuant to this
Section 12.02, shall be paid to the Executive (or for the benefit of the
Executive to the extent of the Company's withholding obligation with respect to
applicable taxes) within 10 days after the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm meeting the requirements
of this Section 12.02 shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Com-

<PAGE>
                                      -15-

pany should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 12.03 and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be paid by
the Company to or for the benefit of the Executive within 10 days after delivery
of copies of a statement setting forth such determination, and the underlying
calculations, to the Company and the Executive. The fees and disbursements of
the Accounting Firm shall be paid by the Company. If required, the Company shall
enter into an engagement letter with the Accounting Firm containing reasonable
and customary terms and provisions.

     SECTION 12.03. The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of a Gross-Up Payment. Such notification shall be given
as soon as practicable but not later than ten business days after the Executive
receives written notice of such claim and shall apprise the Company of the
nature of such claim and the date on which such Claim is requested to be paid.
The Executive shall not pay such claim prior to the expiration of the 30-day
period following the date on which it gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with respect to such
claim is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:

     (i)  give the Company any information reasonably requested by the Company
          relating to such claim,

     (ii) take such action in connection with contesting such claim as the
          Company shall reasonably request in writing from time to time,
          including, without limitation, accepting legal representation with
          respect to such claim by an attorney reasonably selected by the
          Company,

     (iii) cooperate with the Company in good faith in order effectively to
          contest such claim, and

     (iv) permit the Company to participate in any proceedings relating to such
          claim;

provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax, income tax or employment tax, including
interest and penalties with respect thereto, imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 12.03, the Company shall control all
proceedings taken in

<PAGE>
                                      -16-

connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax, income tax
or employment tax, including interest or penalties with respect thereto, imposed
with respect to such advance; and further provided that any extension of the
statute of limitations relating to the payment of taxes for the taxable year of
the Executive with respect to which such contested amount is claimed to be due
is limited solely to such contested amount. Furthermore, the Company's control
of the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled to settle
or contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.

     SECTION 12.04. If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 12.03, the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject to
the Company's complying with the requirements of Sections 12.01, 12.02 and
12.03) promptly pay to the Company, upon receipt of the refund, the amount of
such refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 12.03, a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.

                                   ARTICLE 13

                                  MISCELLANEOUS

     SECTION 13.01. Certain Procedures. There are currently no disciplinary or
grievance procedures in place, there is no collective agreement in place, and
there is no probationary period.

     SECTION 13.02. Consent to Amendments. The provisions of this Agreement may
be amended or waived only by a written agreement executed and delivered by the
Companies and

<PAGE>
                                      -17-

the Executive. No other course of dealing between the parties to this Agreement
or any delay in exercising any rights hereunder will operate as a waiver of any
rights of any such parties.

     SECTION 13.03. Successors and Assigns. All covenants and agreements
contained in this Agreement by or on behalf of any of the parties hereto will
bind and inure to the benefit of the respective successors and assigns of the
parties hereto whether so expressed or not, provided that the Executive may not
assign his rights or delegate his obligations under this Agreement without the
written consent of the Companies; provided further that the Companies may not
assign the rights of the Companies hereunder except to a Person that expressly
assumes the obligations of the Companies hereunder.

     SECTION 13.04. Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.

     SECTION 13.05. Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, any one of which need not contain the signatures of
more than one party, but all of which counterparts taken together will
constitute one and the same agreement.

     SECTION 13.06. Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.

     SECTION 13.07. Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement will
be in writing and will be deemed to have been given when delivered personally to
the recipient, two (2) business days after the date when sent to the recipient
by reputable express courier service (charges prepaid) or four (4) business days
after the date when mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid. Such notices, demands and other
communications will be sent to the Executive and to the Companies at the
addresses set forth below.

     If to the Executive:     To the last address of the Executive on record
                              with the Companies.

     Copies (which shall not constitute notice) of notices to the Executive
     shall also be sent to:

                              Roberts & Holland LLP
                              825 Eighth Avenue, 37th Floor

<PAGE>
                                      -18-

                              New York, NY  10019
                              Attn:  David E. Kahen, Esq.

     If to Parent:            Arch Capital Group Ltd.
                              Executive Offices:
                              20 Horseneck Lane
                              Greenwich, CT 06830
                              Attn: General Counsel

     If to the Company:       Arch Capital Group (U.S.) Inc.
                              20 Horseneck Lane
                              Greenwich, CT 06830
                              Attn: General Counsel

     Copies (which shall not constitute notice) of notices to Parent and the
     Company shall also be sent to:

                              Cahill Gordon & Reindel
                              80 Pine Street
                              New York, NY 10005
                              Attn: Immanuel Kohn, Esq.

or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.

     SECTION 13.08. Withholding. The Companies may withhold from any amounts
payable under this Agreement such federal, state, local or foreign taxes as
shall be required to be withheld pursuant to any applicable law or regulation.

     SECTION 13.09. No Third Party Beneficiary. This Agreement will not confer
any rights or remedies upon any person other than the Companies, the Executive
and their respective heirs, executors, successors and assigns.

     SECTION 13.10. Parent Guarantee. Parent hereby guarantees all of the
obligations of the Company hereunder.

     SECTION 13.11. Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the parties and
supersedes any prior understandings, agreements or representations by or among
the parties, written or oral, that may have related in any way to the subject
matter hereof.

<PAGE>
                                      -19-

     SECTION 13.12. Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rule of strict construction will be applied against any party. Any
reference to any federal, state, local or foreign statute or law will be deemed
also to refer to all rules and regulations promulgated thereunder, unless the
context requires otherwise. The use of the word "including" in this Agreement
means "including without limitation" and is intended by the parties to be by way
of example rather than limitation.

     SECTION 13.13. Survival. Sections 6.01, 7.01, 8.01 and Articles 9, 10, 12
and 13 will survive and continue in full force in accordance with their terms
notwithstanding any termination of the Employment Period.

     SECTION 13.14. GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY AND INTERPRETATION OF THIS AGREEMENT WILL BE GOVERNED BY THE INTERNAL
LAW OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.

     SECTION 13.15. JURISDICTION . The parties agree to the nonexclusive
jurisdiction of the federal and state courts situated in New York County, New
York, for the resolution of any dispute arising under this Agreement, the Stock
Option Agreement or the Restricted Stock Agreements referenced in Sections 4.05
and 4.06.

<PAGE>
                                      -20-

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.

                            ARCH CAPITAL GROUP LTD.

                            By:    /s/ Louis T. Petrillo
                                   ------------------------------------------
                                   Name:   Louis T. Petrillo
                                   Title:  Senior Vice President, General
                                           Counsel and Secretary

                            ARCH CAPITAL GROUP (U.S.) INC.

                            By:    /s/ Louis T. Petrillo
                                   ------------------------------------------
                                   Name:   Louis T. Petrillo
                                   Title:  Senior Vice President, General
                                           Counsel and Secretary

                            /s/ Constantine Iordanou
                            -------------------------------------------------
                            Constantine IordanouExhibit 10.16

                             ARCH CAPITAL GROUP LTD.
                      Non-Qualified Stock Option Agreement

     FOR GOOD AND VALUABLE CONSIDERATION, receipt of which is hereby
acknowledged, Arch Capital Group Ltd. (the "Company"), a Bermuda company, hereby
grants to Constantine Iordanou, an employee of a subsidiary of the Company on
the date hereof (the "Option Holder"), the option to purchase common shares,
$0.01 par value per share, of the Company ("Shares"), upon the following terms:

     WHEREAS, the Option Holder has been granted the following award in
connection with his retention as an employee and as compensation for services to
be rendered; and the following terms reflect the Company's Long Term Incentive
Plan for New Employees (the "Plan");

     (a) Grant. The Option Holder is hereby granted an option (the "Option") to
purchase 425,000 Shares (the "Option Shares") pursuant to the Plan, the terms of
which are incorporated herein by reference. The Option is granted as of January
1, 2002 (the "Date of Grant") and such grant is subject to the terms and
conditions herein and the terms and conditions of the applicable provisions of
the Plan. This Option shall not be treated as an incentive stock option as
defined in Section 422 of the Internal Revenue Code of 1986, as amended. In the
event of any conflict between this Agreement and the Plan, the Plan shall
control.

     (b) Status of Option Shares. The Option Shares shall upon issue rank
equally in all respects with the other Shares.

     (c) Option Price. The purchase price for the Option Shares shall be, except
as herein provided, $23.50 per Option Share, hereinafter sometimes referred to
as the "Option Price," payable immediately in full upon the exercise of the
Option.

     (d) Term of Option. The Option may be exercised only during the period (the
"Option Period") set forth in paragraph (f) below and shall remain exercisable
until the tenth anniversary of the Date of Grant. Thereafter, the Option Holder
shall cease to have any rights in respect thereof. The right to exercise the
Option shall be subject to sooner termination in the event employment with the
Company is terminated, as provided in paragraph (j) below.

<PAGE>
                                      -2-

     (e) No Rights of Shareholder. The Option Holder shall not, by virtue
hereof, be entitled to any rights of a shareholder in the Company, either at law
or in equity.

     (f) Exercisability. Except as otherwise set forth in paragraph (j) below,
the Option shall become vested and exercisable in three equal annual
installments, beginning on the Date of Grant and continuing on the first and
second anniversaries of the Date of Grant. Subject to paragraph (j) below, the
Option may be exercised at any time or from time to time during the Option
Period in regard to all or any portion of the Option which is then vested and
exercisable, as may be adjusted pursuant to paragraph (g) below.

     (g) Adjustments for Recapitalization. In the event that, prior to the
expiration of the Option, any dividend in Shares, recapitalization, Share split,
reverse split, reorganization, merger, consolidation, spin-off, combination,
repurchase, or share exchange, or other such change affects the Shares such that
they are increased or decreased or changed into or exchanged for a different
number or kind of shares, other securities of the Company or of another
corporation or other consideration, then in order to maintain the proportionate
interest of the Option Holder and preserve the value of the Option, (i) there
shall automatically be substituted for each Share subject to the unexercised
Option the number and kind of shares, other securities or other consideration
(including cash) into which each outstanding Share shall be changed or for which
each such Share shall be exchanged, and (ii) the exercise price shall be
increased or decreased proportionately so that the aggregate purchase price for
the Shares subject to the unexercised Option shall remain the same as
immediately prior to such event.

     (h) Nontransferability. The Option, or any interest therein, may not be
assigned or otherwise transferred, disposed of or encumbered by the Option
Holder, other than by will or by the laws of descent and distribution. During
the lifetime of the Option Holder, the Option shall be exercisable only by the
Option Holder or by his or her guardian or legal representative. Notwithstanding
the foregoing, the Option may be transferred by the Option Holder to members of
his or her "immediate family" or to a trust or other entity established for the
exclusive benefit of solely one or more members of the Option Holder's
"immediate family." Any Option held by the transferee will continue to be
subject to the same terms and conditions that were applicable to the Option
immediately prior to the transfer, except that the Option will be exercisable by
the transferee and will be transferable by the transferee only by will or the
laws of descent and distribution. For purposes hereof, "immediate family" means
the Option Holder's children stepchildren, grandchildren, parents, stepparents,
grandparents, spouse, siblings (including half brother and sisters), in laws,
and relationships arising because of legal adoption.

<PAGE>
                                      -3-

     (i) Exercise of Option. In order to exercise the Option, the Option Holder
shall submit to the Company an instrument in writing signed by the Option
Holder, specifying the whole number of Option Shares in respect of which the
Option is being exercised, accompanied by payment, in a manner acceptable to the
Company (which shall include a broker assisted exercise arrangement), of the
Option Price for the Option Shares for which the Option is being exercised.
Payment to the Company in cash or Shares already owned by the Option Holder
(provided that the Option Holder has owned such Shares for a minimum period of
six months or has purchased such Shares on the open market) and having a total
Fair Market Value (as defined below) equal to the exercise price, or in a
combination of cash and such Shares, shall be deemed acceptable for purposes
hereof. Option Shares will be issued accordingly by the Company within 15
business days, and a share certificate dispatched to the Option Holder within 30
days.

     The Company shall not be required to issue fractional Shares upon the
exercise of the Option. If any fractional interest in a Share would be
deliverable upon the exercise of the Option in whole or in part but for the
provisions of this paragraph, the Company, in lieu of delivering any such
fractional share therefor, shall pay a cash adjustment therefor in an amount
equal to their Fair Market Value (or if any Shares are not publicly traded, an
amount equal to the book value per share at the end of the most recent fiscal
quarter) multiplied by the fraction of the fractional share which would
otherwise have been issued hereunder. Anything to the contrary herein
notwithstanding, the Company shall not be obligated to issue any Option Shares
hereunder if the issuance of such Option Shares would violate the provision of
any applicable law, in which event the Company shall, as soon as practicable,
take whatever action it reasonably can so that such Option Shares may be issued
without resulting in such violations of law. For purposes hereof, Fair Market
Value shall mean the mean between the high and low selling prices per Share on
the immediately preceding date (or, if the Shares were not traded on that day,
the next preceding day that the Shares were traded) on the principal exchange on
which the Shares are traded, as such prices are officially quoted on such
exchange.

     (j) Termination of Service. In the event the Option Holder ceases to be an
employee of the Company (a) due to his death or Permanent Disability (as defined
in the Employment Agreement, among the Option Holder, the Company and Arch
Capital Group (U.S.) Inc., dated as of December 20, 2001 (the "Employment
Agreement")), or (b) due to termination (x) by the Company not for Cause (as
defined in the Employment Agreement) or (y) by the Option Holder for Good Reason
(as defined in the Employment Agreement), the Option, to the extent not already
vested and exercisable in full, shall become immediately vested and (i) in the
case of termination due to death or Permanent Disability, shall become
immediately exercisable in full, and (ii) in the case of termination by the
Company not for Cause or by the Option Holder for Good Reason, shall continue to
become exercisable on the schedule set forth in paragraph (f) above; and, once
exercisable, the Option shall continue to be exercisable by the Option Holder
(or his

<PAGE>
                                      -4-

Beneficiary or estate in the event of his death) for a period of three years
following such termination of employment (but not beyond the Option Period). In
the event the Option Holder ceases to be an employee of the Company for any
other reason, except due to a termination of the Option Holder's employment by
the Company for Cause (as defined in the Employment Agreement), the Option, to
the extent then vested and exercisable, may be exercised for 90 days following
termination of employment (but not beyond the Option Period). In the event of a
termination of the Option Holder's employment for Cause, the Option shall
immediately cease to be exercisable and shall be immediately forfeited. To the
extent the Option is not vested at the time of termination of employment, the
Option shall be immediately forfeited. For purposes of this Option, service with
any of the Company's Subsidiaries (as defined in the Plan) shall be considered
to be service with the Company.

     (k) Obligations as to Capital. The Company agrees that it will at all times
maintain authorized and unissued share capital sufficient to fulfill all of its
obligations under the Option.

     (l) Transfer of Shares. The Option, the Option Shares, or any interest in
either, may be sold, assigned, pledged, hypothecated, encumbered, or transferred
or disposed of in any other manner, in whole or in part, only in compliance with
the terms, conditions and restrictions as set forth in the governing instruments
of the Company, applicable United States federal and state securities laws and
the terms and conditions hereof.

     (m) Expenses of Issuance of Option Shares. The issuance of stock
certificates upon the exercise of the Option in whole or in part, shall be
without charge to the Option Holder. The Company shall pay, and indemnify the
Option Holder from and against any issuance, stamp or documentary taxes (other
than transfer taxes) or charges imposed by any governmental body, agency or
official (other than income taxes) by reason of the exercise of the Option in
whole or in part or the resulting issuance of the Option Shares.

     (n) Withholding. No later than the date of exercise of the Option granted
hereunder, the Option Holder shall pay to the Company or make arrangements
satisfactory to the Committee regarding payment of any federal, state or local
taxes of any kind required by law to be withheld upon the exercise of such
Option and the Company shall, to the extent permitted or required by law, have
the right to deduct from any payment of any kind otherwise due to the Option
Holder, federal, state and local taxes of any kind required by law to be
withheld upon the exercise of such Option.

     (o) References. References herein to rights and obligations of the Option
Holder shall apply, where appropriate, to the Option Holder's legal
representative or

<PAGE>
                                      -5-

estate without regard to whether specific reference to such legal representative
or estate is contained in a particular provision of this Option.

     (p) Notices. All notices required or permitted to be given under this
agreement will be in writing and will be deemed to have been given when
delivered personally to the recipient, two (2) business days after the date when
sent to the recipient by reputable express courier service (charges prepaid) or
four (4) business days after the date when mailed to the recipient by certified
or registered mail, return receipt requested and postage prepaid. Such notices,
demands and other communications will be sent to the party concerned at the
addresses set forth below:

                 If to the Company:

                 Arch Capital Group Ltd.
                 Executive Offices:
                 20 Horseneck Lane
                 Greenwich, CT  06830
                 Attn:  Secretary

                 If to the Option Holder:

                 To the last address of the Option Holder on record with
                 the Company;

or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.

     (q) Governing Law. This agreement shall be governed by and construed in
accordance with the laws of New York, without giving effect to principles of
conflict of laws.

     (r) Entire Agreement. This agreement, the Employment Agreement (as defined
above) and the Plan constitute the entire agreement among the parties relating
to the subject matter hereof, and any previous agreement or understanding among
the parties with respect thereto is superseded by this agreement and the Plan.

     (s) Counterparts. This agreement may be executed in two counterparts, each
of which shall constitute one and the same instrument.

<PAGE>
                                      -6-

     IN WITNESS WHEREOF, the undersigned have executed this agreement as of the
Date of Grant.

                              ARCH CAPITAL GROUP LTD.

                              By:    /s/ Louis T. Petrillo
                                     ------------------------------------------
                                     Name:   Louis T. Petrillo
                                     Title:  Senior Vice President, General
                                             Counsel and Secretary

                              /s/ Constantine Iordanou
                              ----------------------------
                              Constantine Iordanou

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