Standard and Poor’s boosts Arch’s financial strength ratings

Standard & Poor’s Ratings Services has raised its counterparty credit and senior debt ratings on Arch Capital Group Ltd. (NASDAQ:ACGL) to ‘BBB+’ from ‘BBB’.
At the same time, Standard & Poor’s raised its counterparty credit and financial strength ratings on operating subsidiaries Arch Reinsurance Ltd., Arch Reinsurance Co., Arch Insurance Co., Arch Specialty Insurance Co., Arch Excess & Surplus Insurance Co., and Arch Insurance Co. (Europe) Ltd. (collectively, Arch) to ‘A’ from ‘A-‘.
The outlook is stable.
“The upgrade reflects Arch’s strong operating performance since inception in absolute and relative terms, its broad and well-diversified business platform, and its strong quantitative and qualitative risk management capabilities, which should help the group mitigate reserve risk associated with its casualty book of business and effectively implement cycle management strategies,” said Standard & Poor’s credit analyst Laline Carvalho.
Standard & Poor’s said it believes Arch’s management team has shown underwriting prudence in recent years and has demonstrated a willingness to implement cycle management initiatives, as seen in its decision to curtail casualty writings since mid-2004 as a reflection of moderately declining pricing conditions following a period of strong growth in this segment from 2002 through early 2004.
Standard & Poor’s also said it expects Arch’s net writings to be flat or modestly decline during 2007, reflecting the expectation that management will remain prudent amid softening market conditions in both property and casualty lines.
Assuming a more normalized level of catastrophe losses for 2007, the group’s operating results should remain very strong, Standard & Poor’s says, albeit not as strong as 2006.
The 2007 combined ratio is expected to be in the 93-95% range, reflective of a higher proportion of casualty coverage in the book of business.