Arch Prices Notes; Best Assigns ‘bbb’ Rating

May 3, 2004

Bermuda-based Arch Capital Group Ltd. announced the pricing of the public offering of $300,000,000 principal amount of 7.35% Senior Notes due 2034.

The company said the notes would “initially be offered by the underwriters at a price of 99.689% of their principal amount, providing an effective yield of 7.45%.” Arch said it “expects to use the net proceeds from the sale of the notes principally to repay all amounts outstanding under its existing credit facility, to support the underwriting activities of its wholly owned insurance and reinsurance subsidiaries and for other general corporate purposes.”

A.M. Best Co. announced that it has assigned a senior debt rating of “bbb-” to the notes and called the outlook “stable.” Best’s financial strength rating on Arch and its subsidiaries is “A-” (Excellent). The debt issuance is not expected to affect the ratings. Best noted that “following the transaction, Arch’s debt to adjusted capital will be approximately 13 percent, and fixed charge coverage is expected to remain in excess of 15 times.

“The rating reflects the company’s excellent capitalization, with $2.0 billion of shareholders’ equity at March 31, 2004, and solid operating results since its inception,” said Best. “These positive attributes stem from the strength of Arch’s senior management team, which has enabled the group to quickly build the necessary operating infrastructure to service a strong broker distribution network and insure that prudent underwriting and risk management controls are properly adhered to within each of its business units.”

The rating agency noted that in 2003, “Arch produced a combined ratio of 90 percent, benefiting from higher market rates, light catastrophes and an unencumbered balance sheet. Furthermore, the company’s investment portfolio has remained conservative, primarily invested in high quality government and corporate fixed income securities.

“Partially offsetting these strengths is Arch’s aggressive underwriting leverage position relative to other start-up operations, the rapid expansion into primary insurance businesses and the overall casualty orientation of various insurance and reinsurance businesses where pricing and reserve adequacy may not be apparent for several years.”

Best said it would “continue to closely monitor Arch’s operations and performance.”

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