A.M. Best Places Ratings of Arch Capital Group Ltd. and Its Subsidiaries under Review with Developing Implications

A.M. Best has placed under review with developing implications the financial strength ratings (FSR) of A+ (Superior) and the issuer credit ratings (ICR) of “aa-” of Arch Reinsurance Ltd. (Hamilton, Bermuda) [NASDAQ: ACGL] and its strategic affiliates. Additionally, A.M. Best has also placed under review with developing implications the ICRs of “a-” and the issue ratings of Arch Capital Group Ltd. (Hamilton, Bermuda) and Arch Capital Group (US) Inc. (Delaware). (See below for a detailed listing of the companies and ratings).

These actions follow the announcement that Arch has entered into a definitive agreement to acquire United Guaranty Corporation (UGC) and AIG United Guaranty (Asia) Ltd. from their current owner, American International Group, Inc. (AIG).

Arch will acquire UGC, a mortgage insurer that operates out of Greensboro, NC, and AIG United Guaranty (Asia) Ltd. for approximately $3.4 billion of cash and securities on Aug. 15, 2016. Upon closing, Arch will provide a significant quota share to UGC that will replace the current quota share provided by AIG. Also, prior to closing and subject to regulatory approvals, the purchase price may be reduced by a special dividend of $250 million from UGC to AIG. The deal is intended to close during the third quarter of 2016 or the first quarter of 2017.

A.M. Best will monitor the transaction over its life cycle until the deal closes and afterward when integration execution becomes complete. During this period, A.M. Best may perform a rating action if, in its opinion, it is perceived that the ratings on Arch are compromised or strengthened based on this transaction or any related or unrelated exogenous event.

The FSR of A+ (Superior) and the ICRs of “aa-” have been placed under review with developing implications for Arch Reinsurance Ltd. and its following affiliates:

• Arch Reinsurance Company
• Arch Insurance Company
• Arch Specialty Insurance Company
• Arch Excess & Surplus Insurance Company
• Arch Indemnity Insurance Company
• Arch Insurance Canada Ltd.
• Arch Insurance Company (Europe) Ltd

The following issue ratings have been placed under review with developing implications:

Arch Capital Group Ltd—

-- “a-” on $300 million 7.35% senior unsecured notes, due 2034

-- “bbb” on $325 million 6.75% non-cumulative preferred shares, Series C

The following indicative issue ratings have been placed under review with developing implications for debt securities available under the existing shelf registration:

Arch Capital Group Ltd—

-- “a-” on senior unsecured debt

-- “bbb+” on subordinated debt

-- “bbb” on preferred stock

Arch Capital Group (U.S.) Inc. (guaranteed by Arch Capital Group Ltd)—

-- “a-” on senior unsecured debt

-- “bbb+” on subordinated debt

-- “bbb” on preferred stock

This press release relates to rating(s) that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2016 by A.M. Best Rating Services, Inc. ALL RIGHTS RESERVED.

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A.M. BestSteven M. ChiricoAssistant Vice President+1 908 439 2200, ext. [e-mail] DeRoseVice President+1 908 439 2200, ext. [e-mail] SharkeyManager, Public Relations+1 908 439 2200, ext. [e-mail] PeavyAssistant Vice President, Public Relations+1 908 439 2200, ext. [e-mail]