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Arch Capital and Units Receive Rating Action from Moody's
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Arch Capital Group Ltd. (ACGL - Free Report) received rating action from Moody's Investors Service, a wing of Moody’s Corp. (MCO - Free Report) following the acquisition of United Guaranty Corporation from American International Group, Inc. (AIG - Free Report) . The rating agency lowered the senior unsecured debt rating of Arch Capital to Baa1 from A3 and the insurance financial strength (IFS) ratings of Arch Capital's principal P&C (re)insurance operating subsidiaries to A2 from A1. The outlook for these ratings is stable.
Concurrently, the rating giant also lowered the IFS rating of Arch Mortgage Guaranty Company (AMG) to Baa1 from A3 with a positive outlook and reiterated the IFS of Arch Mortgage Insurance Company at Baa1. The outlook was upgraded to positive from stable.
The rating downgrade accounts for increased leverage due to financing a portion of the transaction and an increase in credit risk profile due to the considerable expansion of Arch Capital's mortgage insurance operations. Post acquisition, Arch Capital’s mortgage operations now account for 24% of gross premiums written, up from about 8% earlier.
To fund part of the acquisitions, Arch Capital issued debt and preferred stock that increased the leverage ratio to 25% from 19%. Though Moody’s anticipates that Arch Capital will lower the leverage via debt repayments and organic capital growth, the agency stated that the leverage level will remain high for long.
Nonetheless, Moody’s believes that Arch Capital along with United Guaranty Corporation will emerge as a market share leader in the U.S. private mortgage insurance market. While the buyout will diversify Arch Capital’s profile, the acquirer’s profitability will get a boost in the near to medium term.
The rating agency stated the despite less possibility of rating upgrade, lowered leverage could trigger an upgrade. However, returns on capital below mid single digits, consolidated adjusted financial leverage of more than 30%, gross underwriting leverage higher than 3x; or deterioration in shareholders' equity by more than 10% could lead to a downgrade.
Shares of Arch Capital outperformed the Zacks categorized Property and Casualty Insurance industry in the last one month. Shares of the insurer returned 0.87% versus the industry’s gain of 0.57%. The insurer also witnessed the 2017 estimate increasing by a couple of cents in the last 30 days.
Arch Capital carries a Zacks Rank #2 (Buy). Investors interested in the property and casualty industry can look at State National Companies Inc. which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
State National Companies offers property and casualty insurance in the United States. The company delivered positive surprises in two of the last four quarters with an average beat of 21.28%.
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Arch Capital and Units Receive Rating Action from Moody's
Arch Capital Group Ltd. (ACGL - Free Report) received rating action from Moody's Investors Service, a wing of Moody’s Corp. (MCO - Free Report) following the acquisition of United Guaranty Corporation from American International Group, Inc. (AIG - Free Report) . The rating agency lowered the senior unsecured debt rating of Arch Capital to Baa1 from A3 and the insurance financial strength (IFS) ratings of Arch Capital's principal P&C (re)insurance operating subsidiaries to A2 from A1. The outlook for these ratings is stable.
Concurrently, the rating giant also lowered the IFS rating of Arch Mortgage Guaranty Company (AMG) to Baa1 from A3 with a positive outlook and reiterated the IFS of Arch Mortgage Insurance Company at Baa1. The outlook was upgraded to positive from stable.
The rating downgrade accounts for increased leverage due to financing a portion of the transaction and an increase in credit risk profile due to the considerable expansion of Arch Capital's mortgage insurance operations. Post acquisition, Arch Capital’s mortgage operations now account for 24% of gross premiums written, up from about 8% earlier.
To fund part of the acquisitions, Arch Capital issued debt and preferred stock that increased the leverage ratio to 25% from 19%. Though Moody’s anticipates that Arch Capital will lower the leverage via debt repayments and organic capital growth, the agency stated that the leverage level will remain high for long.
Nonetheless, Moody’s believes that Arch Capital along with United Guaranty Corporation will emerge as a market share leader in the U.S. private mortgage insurance market. While the buyout will diversify Arch Capital’s profile, the acquirer’s profitability will get a boost in the near to medium term.
The rating agency stated the despite less possibility of rating upgrade, lowered leverage could trigger an upgrade. However, returns on capital below mid single digits, consolidated adjusted financial leverage of more than 30%, gross underwriting leverage higher than 3x; or deterioration in shareholders' equity by more than 10% could lead to a downgrade.
Shares of Arch Capital outperformed the Zacks categorized Property and Casualty Insurance industry in the last one month. Shares of the insurer returned 0.87% versus the industry’s gain of 0.57%. The insurer also witnessed the 2017 estimate increasing by a couple of cents in the last 30 days.
Arch Capital carries a Zacks Rank #2 (Buy). Investors interested in the property and casualty industry can look at State National Companies Inc. which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
State National Companies offers property and casualty insurance in the United States. The company delivered positive surprises in two of the last four quarters with an average beat of 21.28%.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 "Strong Buy" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 "Strong Sells" and other private research. See these stocks free>>