Arch Capital Group Ltd. Assigned 'BBB-' Rating; Outlook Stable.Business Editors NEW YORK--(BUSINESS WIRE)--Feb. 23, 2004 Credit Rating:BBB-/Stable/-- On Feb. 23, 2004, Standard & Poor's Ratings Services Ratings Service A company, such as Moody's or Standard & Poor's, that rates various debt and preferred stock issues for safety of payment of principal, interest, or dividends. assigned its 'BBB-' counterparty credit rating to Arch Capital Group Ltd. The outlook is stable. The rating is based on Arch and its operating companies' very strong operating performance over the past two years; good capital adequacy, with a robust stock price; and low debt leverage, with debt to capital of 10.5% at year-end 2003. Offsetting these positive factors are the risks of capital strain and a potential misstep from the aggressive growth strategy. Outlook In the next two to three years, Arch is expected to benefit from its good market position and the absence of legacy problems. Debt leverage and coverage are expected to be at or better than that of the rating range. The company is expected to generate positive underwriting results and good return on business written. Major Rating Factors -- Very strong business volume. Arch has successfully established itself as a competitor in insurance and reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. , building a large and diversified business franchise in the past two years. -- Conservative investment portfolio. Arch is invested conservatively, principally in high-quality, short-duration fixed-income assets. Although low yielding in the current interest rate environment, Arch has minimal credit risk in its investment portfolio. -- Strong capital adequacy. Arch's capital is strong, with a capital adequacy ratio Capital adequacy ratio (CAR), also called Capital to Risk (Weighted) Assets Ratio (CRAR)[], is a ratio of a bank's capital to its risk. National regulators track a bank's CAR to ensure that it can absorb a reasonable amount of loss. , based on Standard & Poor's property/casualty capital model. -- Aggressive growth strategy. Arch has grown aggressively since its relaunch Relaunch can refer to several things:
written up 117% from year-end 2002 to year-end 2003. Growth has stressed capital adequacy considerably, but Arch has been profitable through year-end 2003. -- Short track record. As an opportunistic company in both insurance and reinsurance business, management will need to chose its markets carefully, especially as the industry returns to less-strong cyclical cyclical Of or relating to a variable, such as housing starts, car sales, or the price of a certain stock, that is subject to regular or irregular up-and-down movements. periods. Arch's management's ability to make the profitable strategic choices with these operations is yet unproven unproven Dubious, nonscientific, not proven, quack, questionable, unscientific adjective Relating to that which has not been validated by reproducible experiments or other scientific methods for determining effect or efficacy and untested. -- Lower quality of capital. Arch recapitalized in 2001, principally with mandatory convertible Mandatory Convertible A type of convertible bond that has a required conversion or redemption feature. Either on or before a contractual conversion date, the holder must convert the mandatory convertible into the underlying common stock. preferred shares Preferred shares Preferred shares give investors a fixed dividend from the company's earnings and entitle them to be paid before common shareholders. See: Preferred stock. rather than common shares, with debt plus mandatory convertible preferred shares constituting 55% of the group's capital base as of Sept. 30, 2003, down from 58% at year-end 2003. Ratings List Arch Capital Group Ltd. Counterparty credit rating BBB-/Stable/-- Senior debt rating BBB- Complete ratings information is available to subscribers of RatingsDirect, Standard & Poor's Web-based credit analysis system, at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; under Credit Ratings in the left navigation bar A set of buttons or graphic images typically in a row or column used as a central point that link you to major topic sections on a Web site. If the navigation bar is a single graphic image with multiple selections, it is known as an imagemap. See imagemap. , select Credit Ratings Actions. |
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