Best Upgrades Arch (Europe)

December 13, 2006

A.M. Best Co. has upgraded the financial strength rating (FSR) to “A” (excellent) from “A-” (Excellent) and the issuer credit rating (ICR) to “a” from “a-” of the UK-based Arch Insurance Company (Europe) Limited, and assigned both ratings a stable outlook.

Best noted that the upgrades reflect similar action it has taken on the ratings of Bermuda-based Arch Reinsurance Ltd. (See previous article), “which provides explicit support to Arch Europe in the form of an 85 percent quota share. In addition, the ratings reflect Arch Europe’s excellent stand-alone risk-adjusted capitalization, good anticipated operating performance and its developing business profile. Arch Europe commenced operations in 2004.”

Best also indicated: “Arch Europe is likely to maintain excellent stand-alone risk-adjusted capitalization, supporting the initial growth phase of the company, which is likely to stabilize during 2007-2008. The importance of Arch Europe to its ultimate parent company, Arch Capital Group Limited, is indicated by a quota share arrangement with Arch Reinsurance Limited, which was increased to 85 percent from 60 percent in January 2006.”

As for the future outlook, Best said it “anticipates that Arch Europe’s future performance will be good, supported by the commitment of its management to moderate business volumes when opportunities in the market are scarce. In 2006 underwriting performance is expected to be strong, despite a likely increase in the company’s combined ratio to approximately 95 percent, up from 77 percent in 2005. The increase is largely driven by temporary fluctuation in Arch Europe’s expense ratio in its early growth phase, which is further exacerbated by the increase in the percentage of premium ceded under the quota share agreement with Arch Reinsurance Limited.

“Arch Europe has a developing business profile as a recently formed business. The company focuses on marine, onshore energy, offshore energy, property, accident, travel, executive assurance and casualty insurance. The company has formed a significant alliance with a specialist underwriting agency, Dual International Ltd, to provide directors & officers and professional indemnity business.”

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