Fitch Upgrades Arch Capital IDR to 'A-'; Outlook Stable.CHICAGO -- Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. has upgraded its issuer default rating (IDR IDR In currencies, this is the abbreviation for the Indonesian Rupiah. Notes: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. ) on Arch Capital Group, Ltd. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on :ACGL ACGL Arch Capital Group Ltd. ACGL Automobile Corporation of Goa Limited ACGL Alternative County Government Law ) to 'A-' from 'BBB+' and its rating on Arch's $300 million of senior unsecured notes due 2034 to 'BBB+' from 'BBB'. Additionally, Fitch has upgraded its ratings on Arch's $200 million of series A and $125 million of series B 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. to 'BBB' from 'BBB-' and its insurer financial strength (IFS) rating on Arch 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. Ltd. (Arch Re) to 'A' from 'A-'. The Rating Outlook is Stable. Fitch's decision to upgrade Arch's ratings reflects the company's consistently strong underwriting profitability and financial performance relative to peers. The upgrade also reflects Fitch's heightened comfort with Arch's casualty lines reserve adequacy and its effectiveness in maintaining underwriting discipline under various market conditions. The ratings continue to reflect benefits derived from Arch's diverse premium base and the strong support Arch's high-quality and liquid investment portfolio provides for the company's loss reserves. Fitch views combined ratios over extended periods of time as a key reflection of underwriting performance and notes that Arch's average combined ratio from 2002 through the first nine months of 2006 was roughly six points lower than the average combined ratio of a peer group of companies that Fitch tracks. Additionally, Arch's average ROAE ROAE Return on Average Equity was roughly two points higher than this peer group's average ROAE over the same period. During the 2002-September 2006 period, Arch also generated less volatile underwriting results than many of its peers as evidenced by combined ratios that ranged from a high of 95.8% in 2005 to a low of 86.3% through the first nine months of 2006. In contrast, the range of combined ratios reported by many of Arch's peers was much wider with several reporting combined ratios well in excess of 100% in hurricane plagued 2005. Fitch believes that Arch's strong long-term relative financial performance is partially due to the diversity of the company's diverse premium base, which consists of specialty property and casualty lines equally divided between primary and reinsurance premiums. This diverse premium base enables Arch to benefit from a wide variety of market conditions and reduces the company's exposure to any one segment of the market. Fitch also believes that Arch's strong long-term financial performance reflects the company's effectiveness in establishing controls and incentives that focus on underwriting profitability and returns on capital that help the company manage through the various phases of the underwriting cycle. Fitch notes that more than 60% of Arch's loss reserves are for longer-duration casualty business lines that remain somewhat unseasoned. However, the company's ratio of paid losses-to-incurred losses and ratio of reserves for incurred but not reported Incurred but not reported (IBNR) is a term in common use in general insurance. When a policy of general insurance is written it will typically cover a 12 month period from inception of the policy. losses to total reserves are conservative relative to industry-wide averages. Additionally, Fitch views the company's accident year loss ratios as comparable to industry averages. Arch uses a modest amount of financial leverage and on a run-rate basis generates strong interest coverage. At September 30, 2006 the company's equity-credit adjusted ratio of debt and preferred shares-to-capital was 8%. Fitch has assigned Arch's preferred shares class E designations, which allocates 100% of the preferred shares' principal to adjusted equity. Key features supporting the shares' equity credit designation include their junior subordinated ranking, non-cumulative feature, and perpetual nature. Arch has the option to redeem the shares beginning in 2011. The shares' dividend is not subject to a step-up provision if the company elects not to exercise this option. Thus, Fitch does not view the call option as having a limiting effect on the shares' equity-credit designation. Arch's annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. operating earnings-based interest and preferred dividend coverage Preferred dividend coverage Net income after interest and taxes (before common stock dividends) divided by preferred stock dividends. preferred dividend coverage has historically been strong reflecting the company's relatively modest interest and preferred dividend preferred dividend n. a payment of a corporation's profits to holders of preferred shares of stock. (See: preferred stock) requirements and strong operating earnings. The company's interest and preferred dividend coverage averaged 17 times (x) in 2004 and 2005 and was 18x through Sept. 30, 2006 Fitch has upgraded the following ratings with a Stable Outlook: Arch Capital Group, Ltd. --Issuer Default Rating (IDR) to 'A-' from 'BBB+'; --7.35% Senior Unsecured Notes (due 2034) to 'BBB+' from 'BBB'; --8.00% Series A Preferred Stock to 'BBB' from 'BBB-'; --7.875% Series B Preferred Stock to 'BBB' from 'BBB-'. Arch Reinsurance Ltd. --Insurer financial strength (IFS) to 'A' from 'A-'. Fitch's rating definitions and the terms of use Terms of Use are rules set up by the owner of an intellectual property or service to govern how they may be legally used. In many cases, terms of service are used as a contractual agreement between a company and users of a service they provide. of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental are also available from the 'Code of Conduct' section of this site. |
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