Fitch Ratings announced that it has assigned a “BBB-” rating with a positive outlook to Arch Capital Group, Ltd.’s proposed issue of $100 million of Series B non-cumulative perpetual preferred shares.
Fitch said its “ratings on Arch reflect the company’s favorable operating trends and performance, diverse book of business, and moderate financial leverage.” Fitch expects “that Arch will inject the majority of the issue’s proceeds into the company’s operating subsidiaries to support their underwriting activities,” and it “views this as an appropriate strategy given generally favorable market conditions in many of Arch’s chosen business lines, and given the solid premium growth the company generated in first-quarter 2006.”
Fitch noted: “Arch uses a moderate amount of financial leverage and on a run-rate basis generates strong interest coverage. Including the $100 million of proposed Series B shares on a pro-forma basis, the company’s equity-credit adjusted ratio of debt-to-capital at March 31, 2006 was 11 percent.”
The rating agency also said it “believes that Arch’s near-term pro-forma interest and preferred dividend coverage is likely to range from 6 times (x) to 12x. Interest and preferred dividend coverage through first-quarter 2006 was 12x, reflecting Arch’s strong earnings in a period of comparatively light catastrophe-related losses.”
The positive outlook “reflects Arch’s current growth profile, which has moderated following the company’s rapid growth during its start-up phase, and Fitch’s corresponding heightened comfort with the company’s underwriting discipline and operating leverage,” said the bulletin. It also “reflects the company’s maturing position in the highly competitive reinsurance sector.”
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