Best Affirms Arch Capital and Subs ‘A+’ Ratings; Outlook Stable

A.M. Best has affirmed the financial strength rating (FSR) of ‘A+’ (Superior) and the issuer credit ratings (ICR) of “aa-” of Bermuda-based Arch Reinsurance Ltd. and its strategic affiliates. Best also affirmed the ICR of “bbb+” of Arch Capital Group (US) Inc., based in Delaware, as well as the ICR of “a-” and all of the debt ratings of the ultimate holding company, Bermuda’s Arch Capital Group Ltd. The outlook for all of the ratings is stable.

Best said the “affirmations reflect Arch’s continued superior operating performance, consistently excellent capitalization and demonstrated enterprise risk management (ERM). The ratings also acknowledge the depth and experience of the organization’s management team.”

Best’s report noted that “Arch maintains a very strong underwriting culture and focuses on actively managing the cycle. The company is capable of writing a broad range of property/casualty insurance and reinsurance on a worldwide basis and focuses on specialty lines. Arch Capital recently acquired a mortgage insurance operating platform, which will serve as the foundation for Arch to enter the U.S. mortgage insurance market and further diversify its product offerings.

“Since Arch’s inception, overall operating results have been strong and certain metrics have exceeded most peers in the sector. In addition, Arch has historically reported stable and consistent financial results with lower levels of volatility than many of its peers. Arch has maintained a prudent investment portfolio and conservative reserving philosophy, which helps to uphold its balance sheet strength. Underpinning all of Arch’s activities is that the organization has successfully evolved its ERM framework over time as the company continues to become more complex.”

As partial offsetting factors Best cited “the current soft market conditions through which Arch, as well as all industry participants, must navigate. Factors that could result in negative rating pressure include unfavorable operating profitability trends, outsized catastrophe or investment losses relative to Arch’s peers, significant adverse loss reserve development and/or a material decline in risk-adjusted capital.”

However, Best also said: “Factors that could lead to a positive outlook or rating upgrades would be the continuation of long term, consistently strong operating profitability relative to its peers and maintenance of strong risk-adjusted capital levels.”

Best summarized the ratings and the companies affected as follows:

The FSR of A+ (Superior) and the ICRs of “aa-” have 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 Indemnity Insurance Company

• Arch Insurance Canada Ltd.

• Arch Insurance Company (Europe) Ltd

The following debt ratings have been affirmed:

Arch Capital Group Ltd—

— “a-” on $300 million 7.35 percent senior unsecured notes, due 2034

— “bbb” on $325 million 6.75 percent non-cumulative preferred shares, Series C

The following indicative ratings have been affirmed for debt securities available under the existing shelf registration:

Arch Capital Group Ltd—

–“a-” on senior debt

— “bbb+” on subordinated debt

— “bbb” on preferred stock

Arch Capital Group (U.S.) Inc. (guaranteed by Arch Capital Group Ltd)—

— “a-” on senior debt

— “bbb+” on subordinated debt

— “bbb” on preferred stock

Source: A.M. Best

Topics Trends USA Reinsurance