Earnings diversity and robust capital has led S&P to upgrade its long-term issuer and financial strength ratings on Arch’s core re/insurance subsidiaries to ‘AA-’ from ‘A+’ and issuer credit rating on the holding company, Arch Capital Group Ltd., to ‘A’ from ‘A-’.

The credit rating agency also assigned a stable outlook to the entities, citing that this decision reflects its expectations of Arch maintaining a robust capitalization, sustaining improved earnings diversity across its three core underwriting platforms, and capitalizing on still-favourable pricing.

“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 stated.

From 2022-2024, Arch’s re/insurance segments consistently delivered strong underwriting results, the rating agency noted. The company’s insurance segment averaged a 94.7% combined ratio (including 4.2 percentage points (ppts) from natural catastrophe losses, while reinsurance posted an even stronger 86.5% combined ratio (including 10.1 ppts from natural disasters.

Mortgage insurance also reported an exceptionally low 5.6% combined ratio, largely due to reserve releases.

Overall, Arch outperformed competitors with an 82.0% acreage combined ratio, which included 6.4 ppts from natural catastrophe losses. The group maintained a solid 92.5% combined ratio in Q1 2025, even with California wildfire exposure.

S&P projects Arch’s combined ratio to be between 88%-91% for 2025-2027 (including a 7-8 ppts natural catastrophe load), expecting a mid-teens return on equity.

Moreover, Arch is strengthening its competitive position through organic growth and strategic acquisitions. In 2024, the company’s gross premiums written (GPW) grew by 16.9% year-over-year to $21.5 billion, led by a 21.9% expansion in its reinsurance segment.

The insurance segment saw healthy 14.4% growth, boosted by the acquisition of Allianz’s middle-market corporate and entertainment (MCE) insurance business. However, mortgage insurance GPW decreased by 2.6% to $1.4 billion due to fewer mortgage originations.

S&P said: “As an active underwriter, we expect Arch to continue expanding its franchise when market conditions are favourable while scaling back in soft or adverse environments. Over the past three years, Arch recorded notable growth in property and property catastrophe lines.

“The growth was buoyed by a significantly improved market backdrop and structural shifts in the reinsurance sector since early 2023–including higher attachment points and better terms and conditions. We forecast 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 ended 2024 with excellent capitalization, showing 99.99% redundancy, despite a $1.9 billion special dividend. This was driven by a 13.4% increase in shareholder equity and record underwriting/investment income.

S&P expects this robust capital position to continue through 2027, supported by strong performance and disciplined management, even after potential share buybacks.

The rating agency also revised Arch’s risk exposure and has assessed it as moderately high, driven by three primary factors.

First, the company’s significant expansion of its reinsurance business in the past five years; the increase in its property catastrophe exposure in the past three years, capitalizing on the favourable pricing environment; and the fact that the company maintains significant exposure to mortgage insurance amid uncertain times.

Despite this, S&P believes that “Arch is well positioned to weather potential challenges, supported by its robust risk management framework, prudent reinsurance strategy, and diversified earnings.”

The agency concluded: “The stable outlook reflects our expectations of Arch maintaining excellent capital adequacy redundant at the 99.99% confidence level through 2025-2027 and sustaining improved earnings diversity across its three underwriting platforms, while capitalizing on still-favourable pricing.”

Arch Chief Financial Officer and Treasurer Francois Morin, commented: “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.”

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