(The following statement was released by the rating agency)
-- 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.
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.
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.
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
Arch Insurance Canada Ltd.
Counterparty Credit Rating
Local Currency A+/Stable/--
Financial Strength Rating
Local Currency A+/Stable/--
(Caryn Trokie, New York Ratings Unit)