TEXT - S&P rates Arch Insurance Canada Ltd

Fri Dec 21, 2012 2:29pm EST

Related Topics

(The following statement was released by the rating agency)
    
Overview
     -- Arch Canada is the beneficiary of a 85% quota share reinsurance treaty 
from Arch Re that will commence on Jan. 1, 2013.
     -- We are assigning our 'A+' financial strength and counterparty credit 
ratings to Arch Canada.
     -- The ratings and stable outlook on Arch Canada will mirror those on the 
core companies of Arch Capital.

Rating Action
On Dec. 21, 2012, Standard & Poor's Ratings Services assigned its 'A+' 
long-term financial strength and counterparty credit ratings to Arch Insurance 
Canada Ltd. (Arch Canada). The outlook is stable.

Rationale
The ratings on newly formed Arch Canada reflect the established 85% 
quota-share reinsurance treaty effective Jan. 1, 2013, with Arch Reinsurance 
Ltd. (Arch Re; A+/Stable/--), the largest core operating company of the Arch 
Capital Group Ltd. (A-/Stable/--) Consistent with our insurance criteria, an 
affiliate of a core group member becomes core itself if the affiliate is the 
beneficiary of a substantial quota-share reinsurance treaty and possesses 
other key attributes of the parent. The subsidiary also benefits from an 
intragroup stop-loss reinsurance agreement with certain limitations. Arch 
Canada shares the same brand name as its ultimate parent, Arch Capital, and it 
depends on the group for operational, financial, accounting, and actuarial 
resources, as well as investment-management support. We have therefore 
equalized our ratings and outlook on Arch Canada with those on the core 
companies of Arch Capital.

The quota-share reinsurance agreement is structured to include all business 
written after Jan. 1, 2013. The agreement also provides for run-off protection 
if the treaty is terminated. Run-off protection means that if the business is 
ceded or retroceded while the treaty is in force, it will remain covered until 
the underlying contract is terminated.

Arch Canada, domiciled in Toronto, Ontario, is a newly formed operating 
subsidiary of Arch Capital. The group has been operating in Canada by using a 
branch since 2005 and has decided to start writing business in Canada through 
a fully owned Canada-based operating subsidiary effective Jan. 1, 2013. The 
business the Canadian subsidiary will write is similar to that written by the 
former Canadian branch since 2005. The Canadian subsidiary has about $110 
million of capital and we expect operating performance and capital adequacy to 
remain adequate for the rating level.

Outlook
The stable outlook on Arch Canada reflects our outlook on Arch Capital's core 
operating subsidiaries. We designated Arch Canada as a core entity of Arch 
Capital based on our group methodology criteria. As a result, the ratings and 
outlook on Arch Canada will be consistent with those on the core companies of 
Arch Capital. Hence, as a core company of Arch Capital, we only expect to 
revise our outlook on Arch Canada if we revise our outlook on Arch Capital. 
The core status is contingent on the quota-share and stop-loss reinsurance 
agreements remaining in place.

Related Criteria And Research
     -- Arch Capital Group Ltd. And Subsidiaries, Aug. 24, 2012
     -- Group Methodology, April 22, 2009

Ratings List
New Rating

Arch Insurance Canada Ltd.
 Counterparty Credit Rating
  Local Currency                        A+/Stable/--       
 Financial Strength Rating
  Local Currency                        A+/Stable/--       

 (Caryn Trokie, New York Ratings Unit)
FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.