Because testosterone is a natural steroid that's the root cause of why we separate men and women into two different categories in the first place. Cis Men have around 10x the level of Testosterone that Cis Women do, but prior to puberty boys and girls have similar levels. The reference ranges for levels are below. This is why boys/girls can compete interchangeably for a while as kids, but once puberty hits their bodies start changing in radically different ways. Boys start putting on much more physical mass and strength relative to the amount women are able to do. This massive asymmetry in physical strength created by the post-puberty changes in steroid sex hormones is the primary reason why we have gender segregated sports. And that is why transitioning trans women are required to have been on HRT for a period of time before competing, in order to try and get them on a level playing field with existing female competitors.
https://www.mayocliniclabs.com/test-catalog/Clinical+and+Interpretive/83686Men
There's an upper natural limit they test for with both men and women, as generally if you're significant above that limit you're probably doping. It's not an arbitrary guidepost. This situation is an outlier because these conditions are very, very rare. Both AIS variants (partial and complete) have estimates around the 1 in 100K people mark. That's a grand total of 6000 people in the USA, for instance, out of a population of 300M.
It is arbitrary because 1. She is not doping, 2. Why is the line being drawn at hormones?