Best Upgrades Arch Re, Operating Affiliates Ratings to ‘A+’

January 23, 2012

A.M. Best Co. has upgraded the financial strength ratings (FSR) to ‘A+’ (Superior) from ‘A ‘(Excellent) and the issuer credit ratings (ICR) to “aa-” from “a+” of Bermuda-based Arch Reinsurance Ltd., as well as those of its strategic affiliates and its separately rated affiliate, Arch Specialty Insurance Company, headquartered in Omaha, Nebraska.

Best has also upgraded the ICR to “bbb+” from “bbb” of New York-based Arch Capital Group (US) Inc. as well as the ICR to “a-” from “bbb+” and all of the debt ratings of the ultimate holding company, Arch Capital Group Ltd (Bermuda).

The outlook for all of the ratings has been revised to stable from positive.

The upgrades reflect Arch’s “continued superior operating performance amidst challenging market conditions, consistently excellent capitalization and demonstrated risk management ability,” Best explained. Arch maintains a “very strong underwriting culture, which centers on active cycle management and adaptability to varied market conditions. In a market environment where investment yields are hovering at record lows, underwriting profitability needs to be paramount. The company is positioned to write a broad range of property/casualty insurance and reinsurance on a worldwide basis with an emphasis on specialty lines.”

Best also noted that “overall operating results since Arch’s inception have been strong and in certain instances have exceeded most peers in the sector. Typically, Arch has had a smaller share of major industry losses, with 2011 reported losses being no exception, which is demonstrative of the company’s superior risk management.

“As a result, Arch has reported stable and consistent financial results with lower levels of volatility than many of its peers. Furthermore, Arch has a prudent investment portfolio and conservative reserving philosophy, which helps maintain a strong balance sheet.”

As a partial offsetting factor Best cited the “current soft market conditions through which Arch, as well as all industry participants, must navigate.

“For Arch, factors that could result in negative rating pressure include unfavorable operating profitability trends, outsized catastrophe or investment losses relative to peers, significant adverse loss reserve development and/or a material decline in risk-adjusted capital.

“However, factors that could lead to a positive outlook or further 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 affected as follows:
The FSRs have been upgraded to ‘A+’ (Superior) from ‘A’ (Excellent) and the ICRs to “aa-” from “a+” for Arch Reinsurance Ltd. and the following affiliates:
— Arch Reinsurance Company
— Arch Insurance Company
— Arch Specialty Insurance Company
— Arch Excess & Surplus Insurance Company
— Arch Insurance Company (Europe) Ltd

The following debt ratings have been upgraded:

Arch Capital Group Ltd—
— to “a-“from “bbb+” on $300 million 7.35 percent senior unsecured notes, due 2034
— to “bbb” from “bbb-” on $200 million 8 percent non-cumulative preferred shares, Series A
— to “bbb” from “bbb-” on $125 million 7.875 percent non-cumulative preferred shares, Series B

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

Arch Capital Group Ltd—
— to “a-” from “bbb+” on senior debt
— to “bbb+” from “bbb” on subordinated debt
— to “bbb” from “bbb-” on preferred stock

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

Source: A.M. Best

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