KEY RATING DRIVERS
The new issuance is rated equivalent to ACGL's existing senior notes. The net proceeds will be used to fund a portion of the cash consideration for ACGL's acquisition of
The Negative Rating Watch on ACGL's holding company ratings reflects Fitch's anticipated change to a 'ring-fencing' environment classification for ACGL from a 'group solvency' approach following the purchase of UGC, as the acquisition increases the amount of capital outside of the
The Negative Rating Watch also reflects Fitch's potential concerns about the financial strength of UGC and its implications on the overall credit quality of ACGL's holding company. Fitch does not rate UGC. The agency expects to resolve the Negative Watch following a more detailed review UGC's credit quality. This includes gaining an understanding of ACGL's operating strategy, business growth expectations and capital management plans for UGC.
Financial leverage increases sizably from 10.9% at
Fitch expects to downgrade the holding company ratings by one notch upon the closing of the UGC acquisition to reflect a 'ring fencing' classification. The holding company ratings could be downgraded by an additional notch should Fitch view UGC's credit quality as meaningfully weakening ACGL's overall financial strength or debt servicing capabilities.
Key rating triggers that could result in a downgrade of both the insurer financial strength (IFS) and holding company ratings include difficulties experienced in the mortgage insurance operations, including failure to successfully integrate UGC, or sizable adverse prior-year reserve development. In addition, increases in underwriting leverage above 1.0x net premiums written-to-equity ratio or a financial leverage ratio above 25% could generate negative rating pressure.
ACGL's hybrid securities ratings could be lowered by one notch to reflect non-performance risk should Fitch view
Key rating triggers that could result in an upgrade include: continued improvement in ACGL's competitive market position while demonstrating favorable run-rate earnings and low volatility in the challenging (re)insurance environment, with a combined ratio in the low 90s; and successfully managing the expansion of its mortgage operations with the planned acquisition of UGC. In addition, continued growth in equity while maintaining a net premiums written-to-equity ratio of 0.8x or lower, a financial leverage ratio at or below 20%, and fixed charge coverage of at least 10x could generate positive rating pressure.
FULL LIST OF RATING ACTIONS
Fitch assigns the following ratings:
The following current ratings are on Negative Watch:
Arch Capital Group, Ltd.
--Issuer Default Rating 'A';
The following are currently rated as indicated with a Stable Outlook:
--Insurer Financial Strength 'A+'.
Additional information is available on www.fitchratings.com.
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Source: Fitch Ratings