Best Affirms ‘A-‘ Rating of Arch Re

A.M. Best Co. announced that it has affirmed the financial strength rating of A- (Excellent) of Arch Reinsurance Limited (Bermuda), a member of the Arch Capital Group, and its reinsured affiliates, with a stable outlook.

“The rating reflects Arch’s excellent risk-adjusted capitalization and solid operating performance since its inception in late 2001,” said Best. “Further, the strength of Arch’s senior management team has enabled it to quickly build the necessary operating infrastructure to service a strong broker distribution network and to implement prudent underwriting and risk management controls within each of its business units.

“Since commencing operations, Arch has attracted a well diversified book of business on both a direct and assumed basis, both geographically and by line of business. In 2002 and for the first half of 2003, the group has produced a combined ratio well below breakeven, benefiting from higher market rates, light catastrophes and an unencumbered balance sheet, while maintaining reasonable reserving assumptions. Furthermore, Arch’s investment portfolio has remained conservative, with investments in high quality government and corporate fixed income securities.

“Partially offsetting these strengths is the aggressive underwriting leverage position of the company relative to other start-up operations, rapid expansion into primary insurance businesses and the overall casualty orientation of various insurance and reinsurance businesses.”

Best said that the company’s significant recent increase in business volume had happened more rapidly than anticipated. It also noted that “despite the company’s loss reserve adequacy based on current actuarial studies, approximately 55% of Arch’s book of business is in long-tail casualty lines. Due to its short operating history and the long-tail nature of the casualty business, the pricing and reserve adequacy of these lines will not be apparent for several years.”

The rating agency said it would “continue to closely monitor Arch’s premium growth, loss reserve development, capitalization and operating performance.”

The parent company, Arch Capital Group also announced that it has entered into a $300 million revolving credit agreement with a syndicate of banks headed by JP Morgan and Banc of America.