AM Best revises issuer credit rating outlook to positive for Arch Capital

AM Best has revised the outlooks to positive from stable for the Long-Term Issuer Credit Ratings (Long-Term ICRs) for Arch Capital Group Ltd. and its subsidiaries.

The credit rating agency also affirmed the global re/insurer’s Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term ICRs of “aa-” (Superior) of Arch Reinsurance Ltd. (Arch) (Bermuda) and its affiliates.

At the same time, AM Best revised the outlook to positive from stable and affirmed the Long-Term ICRs of “a-” (Excellent) and the Long-Term Issue Credit Ratings (Long-Term IRs) of Arch Capital Group Ltd. (Arch Capital) (Bermuda), the ultimate holding company; Arch Capital Group (US) Inc (Delaware); and Arch Capital Finance LLC (Delaware).

These ratings, according to AM Best, reflect Arch Capital Group’s “strongest” balance sheet strength, alongside its “strong” operating performance, “favourable” business profile, and “appropriate” enterprise risk management (ERM).

The revision of the Long-Term ICR outlooks to positive from stable is attributed to Arch’s consistently robust operating performance.

Despite fluctuating market conditions, particularly the recent favourable reinsurance market following the January 1, 2023, renewal season, Arch has demonstrated a proven track record of delivering superior underwriting results and investment returns, even during softer market years, AM Best explained.

“In the recent market with more favourable underwriting conditions, the group continued to differentiate itself from its peers. A key factor in Arch’s success has been its three underwriting segments (reinsurance, primary insurance, mortgage insurance) and its unique agility in managing underwriting cycles,” the agency stated.

AM Best awarded Arch its highest ratings due to its strong balance sheet, evidenced by Best’s Capital Adequacy Ratio (BCAR), and strong management team.

Arch’s 2023 performance was favourable, with record-high earnings and a robust risk-adjusted capital position, which includes a substantial stressed ultimate loss calculated using AM Best’s criteria.

AM Best used a conservative stress scenario for Arch’s mortgage insurance business and acknowledges the reliance of the mortgage insurance business on financial models that may deviate from actual results.

Due to positive Long-Term ICR outlooks, AM Best expects the group to continue outperforming its peers. This could be achieved through profitable underwriting, robust investment returns, support for recent strategic acquisitions, and continued enhancement of its market position.

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