A.M. Best Affirms Rating of Arch Reinsurance Ltd. – Bermuda

A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) of Arch Reinsurance Limited (Bermuda) (Arch) and its reinsured affiliates. The company is a member of the Arch Capital Group (Bermuda). The outlook for the rating is stable. The rating reflects Arch’s excellent risk-adjusted capitalization and solid operating performance since its inception in late 2001.

Further, the strength of Arch’s senior management team has enabled it to quickly build the necessary operating infrastructure to service a strong broker distribution network and to implement prudent underwriting and risk management controls within each of its business units.

Since commencing operations, Arch has attracted a well diversified book of business on both a direct and assumed basis, both geographically and by line of business. In 2002 and for the first half of 2003, the group has produced a combined ratio well below breakeven, benefiting from higher market rates, light catastrophes and an unencumbered balance sheet, while maintaining reasonable reserving assumptions. Furthermore, Arch’s investment portfolio has remained conservative, with investments in high quality government and corporate fixed income securities.

Partially offsetting these strengths is the aggressive underwriting leverage position of the company relative to other start-up operations, rapid expansion into primary insurance businesses and the overall casualty orientation of various insurance and reinsurance businesses.

Over the past year Arch has significantly increased its business volume in casualty classes more rapidly than A.M. Best had originally anticipated.

Additionally, despite the company’s loss reserve adequacy based on current actuarial studies, approximately 55 percent of Arch’s book of business is in long-tail casualty lines. Due to its short operating history and the long-tail nature of the casualty business, the pricing and reserve adequacy of these lines will not be apparent for several years. A.M. Best will continue to closely monitor Arch’s premium growth, loss reserve development, capitalization and operating performance.

The financial strength rating of A- (Excellent) has been affirmed for Arch Reinsurance Ltd. (Bermuda) and its following reinsured affiliates:

*Arch Reinsurance Company (U.S.); *Arch Insurance Company; *Arch Specialty Insurance Company; *Arch Excess & Surplus Insurance Company; * Personal Service Insurance Company.