Arch Capital Group's issuer default rating has been upgraded from 'A-' to 'A' by Fitch Ratings.

The group's reinsurance arm, Arch Reinsurance Ltd., has also had its insurer financial strength rating upgraded from 'A' to 'A+' by the ratings agency. The rating outlook is stable.

Fitch's decision to upgrade Arch Capital's ratings reflects its opinion that the company's consistently strong underwriting profitability and financial performance relative to its peers. The upgrade also shows Fitch's heightened comfort with Arch Capital's casualty lines reserve adequacy and its effectiveness in maintaining underwriting discipline under various market conditions.

The ratings continue to reflect benefits derived from Arch Capital's diverse premium base and the strong support the company's high-quality and liquid investment portfolio provides for the company's loss reserves. Although mortgage-related securities represent a significant (26 percent at the end of 2007) of Arch Capital's invested assets, the average rating on the mortgage-related portfolio is in the 'AA+/AAA' range. Additionally, the portfolio's exposure to sub-prime and Alt-A mortgages is less than one percent of invested assets.

Fitch views insurers' combined ratios along with their volatility, over extended periods as key measures of underwriting performance, with Arch Capital's 2003-2007 average combined ratio at 89.5 percent with a 4.8 percent standard deviation, roughly three and nine percentage points lower than the median of those of a peer group of Bermuda-based peers.

The ratings agency believes that Arch Capital's strong long-term relative financial performance is partially due to the diversity of the company's diverse premium base, which consists of specialty property and casualty lines equally divided between primary and reinsurance premiums. This diverse premium base enables Arch Capital to benefit from a wide variety of market conditions and reduces the company's exposure to any one segment of the market.

Fitch also reckons that Arch Capital's strong long-term financial performance reflects the company's effectiveness in establishing controls and incentives that focus on underwriting profitability and returns on capital that help the company manage through the various phases of the underwriting cycle.