A.M. Best Upgrades Ratings of Arch Insurance Company (Europe) Limited.

OLDWICK, N.J. -- A.M. Best Co. has upgraded the financial strength rating (FSR) to A (excellent) from A- (Excellent) and the issuer credit rating (ICR) to "a" from "a-" of Arch Insurance Company (Europe) Limited (Arch Europe) (United Kingdom). The outlook for both ratings is stable.

The upgrades reflect the upgrade in the rating of Arch Reinsurance Ltd (Bermuda) (see today's press release) which provides explicit support to Arch Europe in the form of an 85% quota share. In addition, the ratings reflect Arch Europe's excellent stand-alone risk-adjusted capitalisation, good anticipated operating performance and its developing business profile. Arch Europe commenced operations in 2004.

Arch Europe is likely to maintain excellent stand-alone risk-adjusted capitalisation, supporting the initial growth phase of the company which is likely to stabilise during 2007-2008. The importance of Arch Europe to its ultimate parent company, Arch Capital Group Limited, is indicated by a quota share arrangement with Arch Reinsurance Limited, which was increased to 85% from 60% in January 2006.

A.M. Best anticipates that Arch Europe's future performance will be good, supported by the commitment of its management to moderate business volumes when opportunities in the market are scarce. In 2006 underwriting performance is expected to be strong, despite a likely increase in the company's combined ratio to approximately 95%, up from 77% in 2005. The increase is largely driven by temporary fluctuation in Arch Europe's expense ratio in its early growth phase, which is further exacerbated by the increase in the percentage of premium ceded under the quota share agreement with Arch Reinsurance Limited.

Arch Europe has a developing business profile as a recently formed business. The company focuses on marine, onshore energy, offshore energy, property, accident, travel, executive assurance and casualty insurance. The company has formed a significant alliance with a specialist underwriting agency, Dual International Ltd, to provide directors & officers and professional indemnity business.

For Best's Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.