Arch ratings affirmed

AM Best has affirmed Arch Reinsurance’s financial strength rating (FSR) of A+ (Superior) and its long-term issuer credit ratings (ICR) of “aa-” (Superior). It also affirmed the long-term ICRs of “a-” (Excellent) and the long-term issue credit ratings of holding company Arch Capital Group.

“The ratings reflect the group’s balance sheet strength, which AM Best assesses as strongest, as well as its strong operating performance, favourable business profile and appropriate enterprise risk management (ERM),” the agency writes.

The outlook of the credit ratings is stable.

According to the analysts, the ratings are based on Arch’s historically strong operating performance, as well as its balance sheet strength – assessed by AM Best as strongest on its Best Capital Adequacy Ratio (BCAR) measure. It also noted its strong management team.

“In 2020, Arch continued to perform favourably on most operating metrics despite the impact of COVID-19,” the analysis continues. “Arch also has maintained a strong risk-adjusted capital position, which contemplates a significant Stressed Ultimate Loss, as calculated according to AM Best’s “Evaluating Mortgage Insurance” criteria procedure. AM Best utilized a conservative stress scenario for Arch’s mortgage insurance book of business when calculating stress-tested risk-adjusted capitalization. AM Best also recognizes that the mortgage insurance business relies heavily on financial models that can vary from actual results.”

It concludes: “The stable outlooks reflect AM Best’s expectations that the group’s strongest level of balance sheet strength will continue to be supported by strong and stable operating performance, favourable reserve development, diverse business profile and well-defined ERM program.”