Best Upgrades Arch Re to ‘A’

December 13, 2006

A.M. Best Co. has upgraded the financial strength rating (FSR) to “A” (Excellent) from “A-” (Excellent) and the issuer credit ratings (ICR) to “a” from “a-” of Bermuda-based Arch Reinsurance Ltd. and its reinsured affiliates (See following article). Best also upgraded the ICR to “bbb-” from “bb+” of Arch Capital Group (U.S.) Inc, based in Greenwich, Conn., as well as the ICR to “bbb” from “bbb-” and all related debt ratings of Arch Capital Group Limited (Bermuda). The outlook for all ratings is stable.

“These rating upgrades reflect Arch’s excellent capitalization, strong operating performance since its inception and robust risk management system,” said Best. “The company’s proven risk management capability has enabled recent and historical operating performance to be among the leaders in the Bermuda market as evidenced by a 2005 combined ratio of 95.8 percent, despite net catastrophe losses totaling approximately $330 million for the year.

“Arch, along with its affiliated companies, offers primary and reinsurance coverage for both property/casualty lines on a worldwide basis. The combination of Arch’s risk management characteristics, operational controls and diversified business profile have created an organization capable of effectively responding to changes in the market cycle.

“Furthermore, the company’s solid financial flexibility provides strong access to both debt and equity markets. Arch’s financial leverage measures remain low as compared to the industry. A.M. Best expects the company to maintain financial leverage as measured by debt and preferred-to-total capital below 20 percent, while fixed charge coverage is expected to remain in the upper single digit range.”

Best also noted: “Arch’s reinsurance and insurance casualty loss reserve positions for earlier accident years have been maturing and proven to be within conservative ranges. The absence of adverse development in these reserves has provided A.M. Best with comfort concerning the company’s initial loss ratio assumptions.

Partially offsetting these strengths will be Arch’s ability to maintain its underwriting discipline and competitive position within its chosen markets given the additional capital that has entered the industry through new company formations, sidecars and strong 2006 earnings.”

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