8-KOther Events

ARCH CAPITAL GROUP LTD. 8-K Report, Corporate Update (Jul 7, 2006)

Filed July 7, 2006For Securities:ACGLACGLNACGLO

Summary

Arch Capital Group Ltd. (ACGL) announced an amendment to its quota share reinsurance treaty with Flatiron Re Ltd., a subsidiary. Effective June 28, 2006, the percentage of business ceded to Flatiron Re for a specific period (June 28, 2006, to August 15, 2006, with business inception not beyond September 30, 2006) has been increased from 45% to 70%. This change pertains to certain lines of property and marine business underwritten by Arch Reinsurance Ltd. The standard ceding percentage outside this defined period remains at 45%. Furthermore, the amendment modifies the funding requirements for the trust established for the benefit of the Ceding Company. For the period ending December 31 of the final underwriting year, the trust must hold the greater of $800 million or a calculated amount sufficient to cover ceded losses from specified high-severity events (in excess of two 1-in-250 year events). This adjustment aims to enhance financial security and risk transfer under the reinsurance agreement.

Key Highlights

  • 1Arch Capital Group Ltd. subsidiary, Arch Reinsurance Ltd., amended its reinsurance treaty with Flatiron Re Ltd.
  • 2The ceding percentage for a specific period (June 28, 2006 - August 15, 2006, for business inception up to September 30, 2006) increased from 45% to 70%.
  • 3The increased ceding percentage applies to certain property and marine business lines.
  • 4The standard ceding percentage outside the specified period remains 45%.
  • 5The funding requirement for the trust benefiting the Ceding Company has been revised.
  • 6The trust must now maintain a minimum of $800 million or a calculated amount for excess event coverage, whichever is greater.
  • 7This amendment enhances the security and risk transfer of the reinsurance arrangement.

Frequently Asked Questions

The primary change is an increase in the percentage of business ceded to Flatiron Re Ltd. from 45% to 70% for a specific, limited period (June 28, 2006, to August 15, 2006, for business inception not beyond September 30, 2006). Outside this period, the ceding percentage remains 45%.

The amendment requires the trust to hold a minimum of $800 million or a calculated amount that covers potential losses from extreme weather events (more than two 1-in-250 year events), whichever is greater, until the end of the final underwriting year covered by the treaty. This ensures a higher level of financial security.

The increased ceding percentage of 70% applies to certain lines of property and marine business underwritten by Arch Reinsurance Ltd. within the specified limited timeframe.

Yes, by increasing the ceded percentage to 70% for a portion of its business, Arch Capital Group is effectively transferring more risk to Flatiron Re Ltd. during that period. The strengthened trust funding also provides greater assurance regarding the reinsurer's capacity to cover its obligations.