By Michael Loney

July 1 - (The Insurer) - S&P Global Ratings has raised its long-term issuer credit and financial strength ratings on Arch Capital Group's core (re)insurance operating subsidiaries to AA-minus from A-plus.

The rating agency also raised its long-term issuer credit rating on Arch Capital Group to A from A-minus. The outlook on the entities is stable.

“The upgrade reflects our view that the improvement in Arch’s (re)insurance underwriting performance in recent years has enhanced the diversity and resilience of the group’s earnings profile and further solidified its competitive position across global (re)insurance and mortgage insurance markets, underpinned by robust capitalization,” S&P said.

Over 2022 to 2024, Arch’s (re)insurance segments demonstrated consistently sound underwriting performance, S&P said.

Arch’s insurance segment generated an average combined ratio of 94.7% over 2022 to 2024, incorporating 4.2 percentage points from natural catastrophe losses.

The reinsurance segment in the same period delivered a stronger average combined ratio of 86.5%, including 10.1 points from natural disasters.

The mortgage insurance segment posted an “exceptionally low” average combined ratio of 5.6%, largely driven by elevated reserve releases, S&P said.

“As a result, Arch outperformed peers with an average combined ratio of 82.0%, including 6.4 percentage points from natural catastrophe losses,” it added.

The group followed this with a “solid” combined ratio of 92.5% in the first quarter of 2025, S&P highlighted.

“Looking ahead to 2025-2027, we expect Arch to produce a combined ratio between 88% and 91%, incorporating a natural catastrophe load of 7 to 8 percentage points, and to generate a return on equity in the mid-teens,” the rating agency said.

Arch continues to enhance its very strong competitive position through a combination of organic growth and strategic acquisitions, S&P continued, highlighting the 16.9% growth in gross premiums written to $21.5 billion in 2024.

This growth was led by the reinsurance segment, which expanded by 21.9%, while the insurance segment grew 14.4%, largely driven by the acquisition of Allianz’s middle-market corporate and entertainment $(MCE.AU)$ insurance business.

In contrast, mortgage insurance GPW declined by 2.6% to $1.4 billion, reflecting contractions in mortgage originations.

“As an active underwriter, we expect Arch to continue expanding its franchise when market conditions are favorable while scaling back in soft or adverse environments,” S&P said.

S&P forecasts low-teens top-line growth in 2025, primarily driven by the insurance segment through the MCE acquisition, followed by mid-single-digit growth in 2026-2027.

Arch chief financial officer and treasurer Francois Morin responded to the upgrade by stating: “Reaching this milestone in our first quarter-century of existence was no easy task. It is a testament to the hard work and dedication of our entire team, and we’re grateful to our partners, clients and stakeholders for their continued trust and support.”

The upgrade of Arch to the double-A range follows S&P last month upgrading Fairfax’s core (re)insurance subsidiaries to AA-minus from A-plus.