AM Best Affirms Credit Ratings of Arch Capital Group Ltd. and Its Subsidiaries

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). (See below for a detailed listing of the companies and ratings.) The outlook of these Credit Ratings (ratings) is stable.

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.

The FSR of A+ (Superior) and the Long-Term ICRs of “aa-” have been affirmed with stable outlooks for Arch Reinsurance Ltd. and its following affiliates:

• Arch Reinsurance Company
• Arch Insurance Company
• Arch Specialty Insurance Company
• Arch Property Casualty Insurance Company
• Arch Indemnity Insurance Company
• Arch Insurance Canada Ltd.
• Alwyn Insurance Company Limited
• Arch Insurance (UK) Limited

The following Long-Term IR has been assigned with a stable outlook:

Arch Capital Group Ltd.—

-- “bbb” on $330 million 5.45% non-cumulative preferred shares, Series C

The following Long-Term IRs have been affirmed with stable outlooks:

Arch Capital Group Ltd.—

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

-- “bbb” on $450 million 5.25% non-cumulative preferred shares, Series C

Arch Capital Group (US) Inc (guaranteed by Arch Capital Group Ltd.)—

-- “a-” on $500 million 5.144% senior unsecured notes, due 2043

Arch Capital Finance LLC (guaranteed by Arch Capital Group Ltd.)—

-- “a-” on $500 million 4.011% senior unsecured notes, due 2026

-- “a-” on $450 million 5.031% senior unsecured notes, due 2046

The following indicative Long-Term IRs under the existing shelf registration have been affirmed with stable outlooks:

Arch Capital Group Ltd.—

--“a-” on senior unsecured debt

-- “bbb+” on subordinated debt

-- “bbb” on preferred stock

Arch Capital Group (US) 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 Credit Ratings that have been published on AM 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 AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.

AM Best is a global credit rating agency and information provider with an exclusive focus on the insurance industry. Visit www.ambest.com for more information.

Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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