Bermuda-based Arch Capital?s solid credit ratings were yesterday affirmed by a major rating firm while the insurer?s recently proposed preferred share offering was assigned a rating indicating a moderate degree of vulnerability.

Arch announced the proposed share offering earlier this week, and said the proceeds are to go to the company?s insurance and reinsurance divisions to support ?underwriting activities?, according to a statement. S&P said it expected proceeds to support increasing sales of property insurance and reinsurance, which is in high demand and priced at better rates after last year?s hurricane season, the worst on record.

S&P assigned a ?BB+? preferred stock rating to the proposed issuance of Class B, noncumulative preferred shares, expected to raise in the region of $100 million.

?We expect the preferred stock issuance to constitute a draw-down on Arch?s existing universal shelf and to be used to support increased writings in the property business throughout 2006,? said credit analyst Laline Carvalho.

Issuer credit obligation rated ?BB? or lower are regarded as having ?speculative characteristics?, S&P said in a guide to its ratings system posted on its website. A ?BB? rating carries the least degree of speculation, and a ?BB+? even less so.

Overall, and assuming normal catastrophe losses this year, S&P said it expected Arch?s 2006 operating results to be ?very strong?, with a combined ratio between 90 percent and 92 percent, indicating a small profit on each dollar made underwriting insurance policies. Arch has already exceeded that expectation in first quarter with a combined ratio of 88.3 percent. S&P said it didn?t put too much stock in insurers? first quarter results as this is ?not necessarily reflective of expected full-year 2006 results given the very low level of catastrophe losses incurred by the industry in the first three months of the year?. Weather forecasters are predicting another active hurricane season in 2006.

Insurers, new and old, have raised in excess of $20 billion in the wake of last year?s $80 billion hurricane season. The funds have gone to help some insurers recover from large losses stemming from hurricanes Katrina, Rita and Wilma. Capital markets have also been tapped so companies can take advantage of increasing business opportunities as insurance markets harden in a number of areas.

Meanwhile, S&P affirmed parent company Arch Capital Group Ltd.?s ?BBB? long-term counterparty credit and senior debt ratings, as well as the ?A-? long-term counterparty credit and financial strength ratings on the company?s operating units. The outlook on the ratings is stable, or unlikely to change.

S&P said it took into consideration the group?s strong franchise, solid operating results, capital adequacy and financial flexibility while bearing in mind two possible negatives; the company?s relatively short life (Arch formed as a Bermuda insurer in 2001), as well as significant sales of casualty contracts, which have not yet matured.