S&P Raises Arch Outlook; Affirms ‘BBB-‘ Rating

February 3, 2005

Standard & Poor’s Ratings Services announced that it has revised its outlook on Arch Capital Group Ltd. to positive from stable, and has affirmed the group’s its “BBB-” counterparty credit rating.

“The outlook was revised to reflect Arch and its subsidiaries’ substantially improved capital adequacy position relative to prior years, the group’s moderating premium growth, and the expectation that Arch’s strategy will remain prudent in a market that has already begun to soften,” explained S&P credit analyst Laline Carvalho.

S&P said: “The ratings are based on the group’s growing business franchise, very strong operating performance, very strong capital adequacy, and strong financial flexibility.” It noted that these factors are somewhat offset by Arch’s “relatively short operating history and significant proportion of casualty writings that have not yet fully matured.”

“The group is expected to post modest growth in the low-single-digit range in 2005, reflecting management’s continued underwriting discipline,” the report continued. “Operating results are expected to remain strong. Assuming normal catastrophe losses, operating performance is expected to improve further in 2005, and capital adequacy is expected to remain very strong.”

S&P also noted that “Arch has successfully established itself as a competitor in insurance and reinsurance, building a large and diversified business franchise over the past two years. As an opportunistic company in both insurance and reinsurance business, management will need to choose its markets carefully, especially as the industry returns to less-strong cyclical periods. Arch management’s ability to make the profitable strategic choices with these operations is not yet fully proven and tested given its brief three years of operation.”

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