ACGL Arch Capital Group Ltd

A.M. Best Co. has assigned a debt rating of "bb" to Arch Capital Group Limited's (Arch) (NASDAQ: ACGL) (Bermuda) $125 million 7.875% non-cumulative Series B preferred shares. The outlook for this rating is stable. Arch's remaining debt ratings and the financial strength rating of A- (Excellent) of Arch Reinsurance Ltd. (Hamilton, Bermuda) and its affiliated companies are unchanged. The proceeds from the preferred share offering will be used for general corporate purposes. A.M. Best anticipates that these proceeds will be used to support additional opportunities in lines of business that experience rate increases and meet Arch's return expectations. Arch may also redeem the Series B preferred shares in whole or in part at a redemption price of $25 per share on or after May 15, 2011. Following the transaction, Arch's debt-to-adjusted capital will be approximately 19%, and fixed charge coverage is expected to be in the high single-digit range. The rating reflects Arch's excellent capitalization, solid operating performance and its well regarded operating franchise in both its primary and reinsurance business. The combination of Arch's solid historical profits, strong risk management capability and demonstrated financial flexibility has enabled it to withstand the heightened loss activity of the 2005 hurricane season. Partially offsetting these strengths is Arch's higher underwriting leverage position relative to its peer group, combined with the overall casualty orientation of its reinsurance and insurance lines of business. Despite Arch's loss reserve adequacy based on current actuarial studies, approximately 60% of its book of business is in long-tail casualty lines. Due to the company's relatively short operating history and long-tail nature of the casualty business, the pricing and reserve adequacy of these lines will not be fully apparent for several years. A.M. Best will continue to monitor Arch's loss reserve development, capitalization and operating performance. The following debt rating has been assigned: Arch Capital Group Limited-- -- "bb" on $125 million 7.875% non-cumulative Series B preferred shares For Best's Debt Ratings, all other Best's Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings. For current Best's Ratings, independent data and analysis on more than 330 reinsurance companies, please visit www.ambest.com/reinsurance. A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.