A.M. Best Upgrades Issuer Credit Ratings of Arch Reinsurance Ltd. and Affiliates

OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best Co. has upgraded the issuer credit ratings (ICR) to “a+” from “a” and affirmed the financial strength rating (FSR) of A (Excellent) of Arch Reinsurance Ltd. (Arch) (Bermuda) and its reinsured affiliates. A.M. Best also has upgraded the ICR to “bbb” from “bbb-” of Arch Capital Group (US) Inc. (New York, NY) and the ICR to “bbb+” from “bbb” of Arch Capital Group Ltd (Bermuda) (NASDAQ: ACGL). Concurrently, A.M. Best has upgraded all debt ratings of Arch Capital Group Limited and assigned an FSR of A (Excellent) and ICR of “a+” to Arch Indemnity Insurance Company (Nebraska). The outlook for all ratings is stable. (See below for a detailed list of the companies and ratings.)

The upgrading of the debt and the ICRs reflect Arch’s strong operating performance, consistently excellent capitalization and proven risk management systems. Arch’s risk management capabilities are evident in its historical operating performance, and although the company’s third quarter 2008 operating performance is expected to be impacted by catastrophe losses, its overall underwriting performance still places Arch among the leaders in the Bermuda market. With products offered on a worldwide basis in primary and reinsurance markets for property/casualty lines, Arch’s risk management characteristics, operational controls and diversified business profile have created an organization capable of adeptly responding to changes in the market cycle. Arch’s attributes are further enhanced by its overall conservative investment portfolio, which A.M. Best expects to be affected by current market turmoil, but still leaves the company with more than adequate liquidity to respond to policyholder claims.

Arch’s financial leverage measures remain low as compared to the industry. A.M. Best expects the company to maintain financial leverage as measured by debt and preferred-to-total capital below 20%, while fixed charge coverage is expected to remain in the upper single digit range.

Partially offsetting these strengths will be Arch’s ability to maintain its underwriting discipline and competitive position within its chosen markets given the current soft market conditions. However, these concerns are mitigated by Arch’s multiple product strategy, worldwide distribution system and experienced management team.

The ICRs have been upgraded to “a+” from “a” and the FSR of A (Excellent) has been affirmed for Arch Reinsurance Ltd. and its following reinsured affiliates:

• Arch Reinsurance Company
• Arch Insurance Company
• Arch Specialty Insurance Company
• Arch Excess & Surplus Insurance Company
• Arch Insurance Company (Europe) Limited

The FSR of A (Excellent) and ICR of “a+” have been assigned to Arch Indemnity Insurance Company.

The ICR has been upgraded to “bbb+ from “bbb” for Arch Capital Group Ltd.

The ICR has been upgraded to “bbb” from ”bbb-”for Arch Capital Group (US) Inc.

The following debt ratings have been upgraded:

Arch Capital Group Ltd—

-- to “bbb+” from “bbb” on $300 million 7.35% senior unsecured notes, due 2034

-- to “bbb-” from “bb+” on $200 million 8% non-cumulative preferred shares, Series A, due 2011

-- to “bbb-” from “bb+” on $125 million 7.875% non-cumulative preferred shares, Series B

The following indicative shelf ratings have been upgraded for debt securities available under the existing shelf registration:

Arch Capital Group Ltd—

-- to “bbb+” from “bbb” on senior debt

-- to “bbb” from “bbb-” on subordinated debt

-- to “bbb-” from “bb+” on preferred stock

Arch Capital Group (U.S.) Inc. (guaranteed by Arch Capital Group Limited)—

-- to “bbb+ from “bbb” on senior debt

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.