A.M. Best Co. has affirmed the ratings of Arch Insurance Company (Europe) Ltd. as a reflection of adequate risk-adjusted capitalisation, good prospective profitability and a limited but improving business profile as a recently formed company, Best said.

The outlook for the financial strength rating of A- (Excellent) and the issuer credit rating of ?a-? remains stable.

Best said Arch Europe?s risk-adjusted capitalisation is likely to remain adequate, taking into account business growth expected for the next three years.

The rating also factors explicit support from its Bermuda-based parent company, Arch Capital Group Limited in the form of a 60 percent quota share arrangement with the Arch Group?s principal operating subsidiary, Arch Reinsurance Ltd.

Potential pressure on the company?s financial strength due to planned growth is likely to be mitigated through additional parental support, Best said.

After absorbing an estimated $5 million in US hurricane losses, Arch Europe?s loss ratio will remain low, decreasing marginally to approximately 62.5 percent in 2006 down from 65 percent anticipated in 2005 while operating expense ratios for 2005 and 2006 are expected to stabilise at less than 30 percent, supported by anticipated expansion in Arch Europe?s net premiums written.

Arch Europe has a limited business profile as a new entrant in the London market in May 2004, Best said, noting that total gross written premium is expected to reach approximately $212 million for 2005, exceeding initial expectations.

Best said it expects business growth to continue for the next three years, with an estimated increase of 50 percent in 2006 due to both a hardening market for certain classes of business and an expanding portfolio.