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16 Dec 2011
New York, December 16, 2011 -- Moody's Investors Service has upgraded the insurance financial strength
ratings of Arch Capital Group Ltd.'s ("Arch"
-- NASDAQ: ACGL) principal operating subsidiaries to A1 from
A2. In the same rating action, Moody's upgraded Arch's
preferred stock and debt ratings by one notch (senior unsecured debt rating
to A3 from Baa1). The outlook for the ratings is stable.
RATINGS RATIONALE
According to Moody's, the rating upgrade reflects Arch's
strong performance across a variety of financial metrics, including
its longer-term profitability outperformance (with lower volatility)
relative to most of its peers. Arch has been consistently profitable
since its inception in late 2001, benefitting from the hard market
conditions that followed the large industry-wide losses arising
from the terrorist attacks of September 11, 2001. The company
has also kept catastrophe losses as a percentage of equity capital to
levels typically below the peer average. Arch's strong capital
adequacy and moderate adjusted financial leverage (13.1%
at 3Q2011) are also supportive of the company's ratings.
Finally, in Moody's view, Arch has also maintained a
measured underwriting posture in the face of the recent soft market,
by shifting its business mix toward shorter-tailed lines and keeping
overall premium volumes in check.
Moody's noted that Arch's ratings reflect the company's established
operating platform and good spread of risk in specialty international
insurance and reinsurance (through its leading subsidiaries located in
Bermuda, the United States and the United Kingdom), its strong
equity capitalization and balance sheet unencumbered by legacy exposures,
its high quality investment portfolio and strong liquidity at the holding
company. Arch has produced strong and consistent profits over the
years and maintains a moderate financial leverage profile. These
strengths are tempered by the underwriting volatility and pricing uncertainty
inherent in many of the company's chosen lines of business, which
include catastrophe-exposed property and aviation risks and low
frequency, high severity casualty-based exposures.
While Moody's sees little potential for further upward pressure on Arch's
ratings over the medium term, increased geographic and product diversification
and reduced catastrophe risk exposure would further augment the company's
credit profile.
Conversely, the following factors could exert downward pressure
on the ratings: adjusted financial leverage above 18% ,
gross underwriting leverage above 3x and a decline in shareholders' equity
of more than 10% over a 12-month period from capital management
actions, underwriting losses and/or investment losses.
The following ratings have been upgraded:
Arch Capital Group Ltd. -- senior unsecured to A3
from Baa1; preferred stock to Baa2 from Baa3;
Arch Reinsurance Ltd. -- insurance financial strength
to A1 from A2;
Arch Insurance Company (Europe) Ltd. -- insurance
financial strength to A1 from A2;
Arch Reinsurance Company -- insurance financial strength
to A1 from A2;
Arch Insurance Company -- insurance financial strength to
A1 from A2;
Arch Specialty Insurance Company -- insurance financial
strength to A1 from A2;
Arch Excess and Surplus Insurance Company -- insurance financial
strength to A1 from A2.
Through its operating subsidiaries, Arch writes commercial and specialty
lines of business in the insurance and reinsurance markets primarily through
national and regional brokers. Through the first nine months of
2011, Arch reported $2.2 billion of net premiums written
and $274 million in net income available to common shareholders.
As of September 30, 2011, shareholders' equity was approximately
$4.5 billion.
The principal methodology used in this rating was Moody's Global
Rating Methodology for Reinsurers published in July 2008. Please
see the Credit Policy page on www.moodys.com for a copy
of this methodology.
REGULATORY DISCLOSURES
Although this credit rating has been issued in a non-EU country
which has not been recognized as endorsable at this date, this credit
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be used by financial institutions for regulatory purposes until 31 January
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James Eck
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Stanislas Rouyer
Senior Vice President
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's upgrades Arch Capital Group's ratings (Insurance Financial Strength to A1); Outlook stable
No Related Data.
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