Best Affirms Arch Re and Affiliates ‘A’ Ratings; Stable Outlook

December 16, 2009

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a+” of Bermuda-based Arch Reinsurance Ltd. and its reinsured affiliates. Best also affirmed the ICRs of “bbb” and “bbb+” of Arch Capital Group (US) Inc. and Arch Capital Group Ltd. (Bermuda), respectively, as well as all debt ratings of the Arch Capital Group Ltd.

The outlook for all ratings is stable.

Best also withdrew the FSR of ‘A’ (Excellent) and ICR of “a+” of Arch Indemnity Insurance Company (Omaha, NE) and assigned an NR-5 (Not Formally Followed) to the FSR and an “nr” to the ICR. These withdrawals are “due to management’s decision to postpone development of its business plans in this entity given the current soft business conditions,” Best explained.

The affirmation of the ratings reflects “Arch’s strong operating performance, consistently excellent capitalization and demonstrated risk management,” said Best. “Arch maintains a strong underwriting culture and its overall underwriting performance continues to place it among the leaders in the Bermuda market. Products are offered on a worldwide basis in both primary and reinsurance markets for property/casualty lines of business.

“Arch places its operating emphasis on managing the underwriting cycle and adapts its overall book of business to optimize profit potential and limit exposure. Furthermore, Arch maintains a prudent investment portfolio that does not place excessive risk on the asset side of the balance sheet.”

However, best did note that “Arch’s ability to maintain its underwriting discipline within its chosen markets given the current soft market conditions,” could be an offsetting factor to be considered. “In addition, as an underwriter of medium to long-tail casualty businesses, Arch needs to be cognizant of exposure to potential inflationary pressures,” Best concluded.

Best summarized the ratings as follows:
The FSR of A (Excellent) and ICRs of “a+” has been affirmed for Arch Reinsurance Ltd. and its following affiliates:
— Arch Reinsurance Company
— Arch Insurance Company
— Arch Specialty Insurance Company
— Arch Excess & Surplus Insurance Company
— Arch Insurance Company (Europe) Ltd

The ICR of “bbb+” has been affirmed for Arch Capital Group Ltd.

The ICR of “bbb” has been affirmed for Arch Capital Group (US) Inc.

The following debt ratings have been affirmed:
Arch Capital Group Ltd—
— “bbb+” on $300 million 7.35% senior unsecured notes, due 2034
— “bbb-” on $200 million 8% non-cumulative preferred shares, Series A, due
— “bbb-” on $125 million 7.875% non-cumulative preferred shares, Series B

The following indicative shelf ratings have been affirmed for debt securities available under the existing shelf registration:
Arch Capital Group Ltd—
— “bbb+” on senior debt
— “bbb” on subordinated debt
— “bbb-” on preferred stock

Arch Capital Group (U.S.) Inc. (guaranteed by Arch Capital Group Ltd)—
— “bbb+” on senior debt
— “bbb” on subordinated debt
— “bbb-” on preferred stock

Source: A.M. Best –

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