Best Affirms FSR for Arch Insurance Co. (Europe)

November 1, 2005

A.M. Best Co. has affirmed the financial strength rating of A- (Excellent) and the issuer credit rating of “a-” of Arch Insurance Company (Europe) Limited (Arch Europe) (United Kingdom). The outlook for both ratings remains stable.

The ratings reflect Arch Europe’s adequate risk-adjusted capitalization, good prospective profitability and its limited but improving business profile as a recently formed company. The ratings also take into consideration the support of its Bermuda-based parent company, Arch Capital Group Limited (Arch Group).

Adequate risk-adjusted capitalization – A.M. Best believes that Arch Europe’s risk-adjusted capitalization is likely to remain adequate, taking into account business growth expected for the next three years. The rating also factors explicit support from Arch Group in the form of a 60% quota share arrangement with the Arch Group’s principal operating subsidiary, Arch Reinsurance Ltd. In addition, A.M. Best anticipates that potential pressure on the company’s financial strength due to planned growth is likely to be mitigated through additional parental support.

Good prospective profitability – A.M. Best anticipates that Arch Europe’s loss ratio will remain low, decreasing marginally to approximately 62.5% in 2006 down from 65% anticipated in 2005 (after absorbing estimated U.S. hurricane losses of around GBP 2.8 million (USD 5 million)). Operating expense ratios for 2005 and 2006 are expected to stabilize at less than 30%, supported by anticipated expansion in Arch Europe’s net premiums written.

Limited business profile – Arch Europe has a limited business profile as a new entrant in the London market in May 2004. Total gross written premium is expected to reach approximately GBP 120 million (USD 212 million) for 2005, exceeding initial expectations. A.M. Best expects business growth to continue for the next three years, with an estimated increase of 50% in 2006, reflecting both a hardening market for certain classes of business and an expanding portfolio.

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