AM Best Affirms Credit Ratings Of Arch Capital

October 20, 2019

AM Best has affirmed the Financial Strength Rating [FSR] of A+ [Superior] and the Long-Term Issuer Credit Rating [Long-Term ICR] of “aa-” of Arch Reinsurance Ltd. [Arch] [Bermuda] and its strategic affiliates.

Concurrently, AM Best has affirmed the Long-Term ICR of “a-” and the Long-Term Issue Credit Ratings [Long-Term IRs] of Arch Capital Group Ltd. [Arch Capital][Bermuda] [NASDAQ: ACGL], the ultimate holding company; Arch Capital Group [US] Inc [Delaware]; and Arch Capital Finance LLC [Delaware]. The outlook of these Credit Ratings is stable.

The ratings agency said, “The ratings of Arch reflect the group’s balance sheet strength, which AM Best categorizes as strongest, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management.

“The ratings are based on Arch’s historically strong operating performance, its balance sheet strength, as measured by Best’s Capital Adequacy Ratio, and strong management team. Arch continues to perform favorably on most operating metrics while maintaining a strong risk-adjusted capital position, despite a significant Stressed Ultimate Loss, as calculated according to AM Best’s “Evaluating Mortgage Insurance” criteria procedure, and low risk-adjusted investment market returns.

“In years with large market losses, such as hurricanes Katrina, Rita and Wilma in 2005; the financial crisis in 2008; the string of global catastrophes in 2011; and the natural catastrophe activity experienced in 2017-2018, Arch has performed well compared with most of its peers. This robust performance was led by Arch’s extremely profitable mortgage [re]insurance business. In addition, Arch has demonstrated that it will actively manage the [re]insurance cycle.

“The stable outlooks reflect the successful integration of United Guaranty Corporation, which Arch finalized the acquisition of in late 2016, as well as the significant contribution of the United Guaranty Corporation business to Arch’s net income and retained earnings during 2018.

“AM Best also recognizes that the mortgage insurance business relies heavily on financial models that can vary from actual results. AM Best utilized what it believes to be a conservative stress scenario for Arch’s mortgage insurance book of business when calculating stress-tested risk-adjusted capitalization. Mortgage insurance products have a relatively long exposure period when compared with most of Arch’s current property/casualty insurance and reinsurance products, which can be characterized as medium tail on average. AM Best considered long-term sources of liquidity in the evaluation of these potential tail risk events.”

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