(the following declaration become launched with the aid of
the score business enterprise) CHICAGO, August 16 (Fitch) Fitch scores has
positioned the subsequent scores of Arch Capital group Ltd. (ACGL) on rating
Watch bad: --provider Default score (IDR) at 'A'; --Senior unsecured notes at
'A-'; --series C favored stocks at 'BBB+'. additionally, Fitch has affirmed the
Insurer financial energy (IFS) ratings of ACGL's numerous subsidiaries at 'A+'.
The score Outlook is solid. A whole listing of rankings is supplied at the stop
of this release. KEY rating DRIVERS Fitch's affirmation of ACGL's IFS scores
follows the day before today's announcement that it entered into an settlement
to acquire United warranty employer (UGC) from American international
organization, Inc. (AIG) for total attention of $three.four billion (about 64%
coins and 36% stock). ACGL subsidiaries may even in the end assume future UGC
loan coverage enterprise this is presently ceded to AIG underneath a quota
percentage treaty. The near is expected in either overdue fourth quarter 2016
or early first region 2017, subject to regulatory and government-backed company
(GSE) approval. The poor Watch on ACGL's conserving agency rankings displays
improved economic leverage to finance the deal. Fitch's action also reflects an
expected trade for ACGL to a 'ring-fencing' environment classification from a
'group solvency' technique following the purchase of UGC, as the acquisition is
likely to growth the amount of capital out of doors of the Bermuda group
solvency surroundings. below Fitch's rating criteria, a ring-fencing technique
is applied to worldwide corporations which have more than 30% of capital or
earnings from foreign subsidiaries. At yr-quit 2015, ACGL had 34% and 17% of
capital and profits, respectively, from overseas subsidiaries. Fitch views the
transaction as a mild credit poor to ACGL in the close to time period given the
execution and integration risk inherent in an acquisition, as well as the
increased economic leverage publish-merger. a success execution of this
acquisition could provide longer term positive credit score blessings related
to the accelerated size/scale of the mortgage insurance commercial enterprise
and the diversification of income and business profile. Fitch believes that the
maximum huge dangers of the purchase are the viable complications arising for
the duration of the system of integrating the operations and danger control practices
of UGC. that is mainly the case given UGC's exceedingly massive length and
ACGL's greater constrained acquisition revel in. Fitch expects that ACGL will
prudently manipulate UGC to the company's conservative underwriting and
risk-control requirements. Favorably, the acquisition gives ACGL a management
function in the presently profitable U.S. mortgage coverage zone, as UGC is the
pinnacle loan coverage organization with the aid of income (22% marketplace
percentage). UGC provides $1 billion of annual top class written to ACGL's
present day $zero.four billion of loan premiums. This extensively improved size
and scale should assist the organisation to greater profitably manipulate its
loan enterprise, providing overall rate financial savings. additionally nice,
UGC adds an intensive bank channel distribution to ACGL's dominant credit union
distribution position. the purchase additionally will increase ACGL's
commercial enterprise diversification with a pro forma gross charges written
(GPW) enterprise mix (apart from Watford Re) of 24% loan, fifty one% coverage
and 25% reinsurance. This compares to 8%, 61% and 31%, respectively, for ACGL
presently. financial leverage increases sizably from eleven.9% at June 30, 2016
to about 20%-25% seasoned forma (relying on very last Fitch fairness credit).
The growth is due to an expected $1.a hundred twenty five billion of debt
issued to in part finance the cash consideration for the purchase. The
attention can even consist of perpetual non-cumulative favored stocks (a
hundred% equity credit score) to be issued by means of ACGL. similarly, ACGL
expects to issue $975 million of convertible non-balloting perpetual favored
inventory (both a hundred% or 50% fairness credit score relying on very last
terms) to AIG as inventory consideration for the acquisition. rating
SENSITIVITIES Fitch could assume to downgrade the protecting organization
scores with the aid of one notch following the growth in monetary leverage or
upon the final of the UGC acquisition. Key score triggers that could result in
a downgrade of each the IFS and conserving enterprise scores consist of
problems experienced inside the loan coverage operations, inclusive of failure
to efficaciously combine UGC, or large adverse earlier-yr reserve improvement.
in addition, increases in underwriting leverage above 1.0x net premiums
written-to-fairness ratio or a financial leverage ratio above 25% could
generate terrible rating stress. ACGL's hybrid securities ratings may be
decreased with the aid of one notch to mirror non-performance chance should
Fitch view Bermuda's regulatory surroundings as turning into greater
controlling in its supervision of (re)insurers. Key rating triggers that could
result in an upgrade encompass endured improvement in ACGL's competitive marketplace
position whilst demonstrating favorable run-price profits and coffee volatility
inside the hard (re)insurance environment, with a combined ratio within the low
90s; and efficiently dealing with the expansion of its loan operations with the
deliberate acquisition of UGC. further, persevered growth in equity even as
keeping a net premiums written-to-equity ratio of zero.8x or lower, a monetary
leverage ratio at or under 20%, and glued fee insurance of at the least 10x may
want to generate high quality score stress. full list OF score actions Fitch
locations the subsequent scores on score Watch bad: Arch Capital organization,
Ltd. --IDR at 'A'; --$three hundred million 7.35% senior unsecured notes due
2034 at 'A-'; --$325 million 6.75% series C non-cumulative preferred shares at
'BBB+'. Arch Capital organization (U.S.) Inc. --$500 million five.one hundred
forty four% senior notes due 2043 at 'A-'. Fitch affirms the subsequent
rankings with a stable Outlook: Arch Reinsurance Ltd. Arch Reinsurance enterprise
Arch Reinsurance Europe Underwriting specific pastime company Arch insurance
employer Arch excess and Surplus insurance organisation Arch forte coverage
business enterprise Arch Indemnity insurance agency Arch insurance organisation
(Europe) restricted --IFS at 'A+'. contact: number one Analyst Brian C.
Schneider, CPA, CPCU, ARe Senior Director +1-312-606-2321 Fitch scores, Inc. 70
W. Madison street Chicago, IL 60602 Secondary Analyst Martha Butler, CFA Senior
Director +1-312-368-3191 Committee Chairperson Douglas Meyer, CFA dealing with
Director +1-312-368-2061 Media relations: Hannah James, new york, Tel: + 1 646
582 4947, electronic mail: hannah.james@fitchratings.com. extra facts is to be
had on www.fitchratings.com precis of economic statement changes: Fitch has
adjusted ACGL's economic leverage and stuck rate insurance ratios to exclude
Watford Re's revolving credit agreement borrowings and hobby price. ACGL
simplest owns about 11% of the common fairness of Watford Holdings Ltd. (parent
of Watford Re). however, Watford Re's monetary effects are required to be
consolidated into ACGL, as ACGL is considered the number one beneficiary of
Watford Re. The cited adjustment did no longer result in a specific rating than
had the adjustment not been made, however it's miles fabric in how Fitch views
financial leverage and stuck charge insurance. relevant standards coverage
score methodology (pub. 17 might also 2016) here extra Disclosures Dodd-Frank
rating data Disclosure form right here _id=1010429 Solicitation fame here
Endorsement policy right here ail=31 ALL FITCH credit score rankings ARE
situation TO positive obstacles AND DISCLAIMERS. PLEASE study these obstacles
AND DISCLAIMERS with the aid of FOLLOWING THIS hyperlink: here. similarly,
rating DEFINITIONS AND THE terms OF USE OF SUCH rankings ARE available on the
organization'S PUBLIC website 'WWW.FITCHRATINGS.COM'. posted rankings, criteria
AND METHODOLOGIES ARE to be had FROM THIS web page at all times. FITCH'S CODE
OF conduct, CONFIDENTIALITY, CONFLICTS OF interest, associate FIREWALL,
COMPLIANCE AND other applicable regulations AND strategies are also available
FROM THE 'CODE OF conduct' segment OF THIS site. FITCH may HAVE supplied
another PERMISSIBLE carrier TO THE RATED ENTITY OR ITS related 0.33 events.
details OF THIS carrier FOR rankings FOR WHICH THE LEAD ANALYST IS based IN an
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