Ratings agency Fitch is maintaining a negative rating watch on the debt of insurance and reinsurance specialist Arch Capital Group Ltd., in the wake of the firms acquisition of mortgage insurance player United Guaranty Corporation from AIG.
Bermudian re/insurer Arch completed the acquisition of United Guaranty from insurance giant AIG back in January, but rating agencies have taken their time assessing the impact of bringing such a large mortgage insurance portfolio into the group.
Fitch Ratings highlights its “potential concerns about the financial strength of United Guaranty Corporation (UGC) and its implications for the overall credit quality of ACGL’s holding company.”
However the negative outlook on Arch’s debt ratings is expected to be lifted, once the rating agency has completed its review of both firm’s prospects.
Fitch said “The agency expects to resolve the Negative Watch by the end of July 2017 as part of our periodic annual review of ACGL and following a more detailed review of UGC’s credit quality.”
This demonstrates that not all mergers and acquisitions are simple affairs, and the management team of a re/insurer must be prepared for some negative sentiment in the wake of a deal completing.
Arch continues to expand into the mortgage insurance space, providing the re/insurer with additional diversification but also making its operating platform more complex, which no doubt helped to stimulate the extended period of assessment from its rater.