Arch Capital Group’s recently concluded $3.4 billion purchase of American International Group’s mortgage guaranty unit spurred both cautious and negative reactions from Moody’s Investors Service and Fitch Ratings. A.M. Best maintained its ratings.

Moody’s downgraded the insurance financial strength ratings (IFS) of Arch Capital’s principal property/casualty insurance and reinsurance operating subsidiaries to A2 from A1. The same treatment applied to the senior unsecured debt rating of Arch Capital Group, which dipped to a Baa1 from A3. Both have a stable ratings outlook, however.

Additionally, Moody’s downgraded the IFS rating of Arch Mortgage Guaranty Company to Baa1 from A3.

Moody’s said it was worried that Arch Capital’s acquisition of United Guaranty Corp., first announced in August, would increase its credit risk profile “due to the substantial expansion of Arch Capital’s mortgage insurance operations” as well as a much higher financial leverage due to debt and preferred shares used to finance some of the acquisition.

Moody’s noted that the acquisition helped spike Arch Capital’s financial leverages to 25 percent, up from 19 percent at the end of 2015. Moody’s said it expects that number to go down over time thanks to organic growth and debt repayments, but it is concerned that the higher leverage will remain for a while.

Fitch Ratings, meanwhile, downgraded and maintained on rating watch negative a number of Arch Capital Group ratings. Arch’s long-term issuer default rating dipped to ‘A-‘ from ‘A.’ Its senior unsecured notes rating declined to ‘BBB+’ from ‘A-.’ Also, the ratings on Arch’s Series C and E preferred securities dipped to ‘BBB’ from ‘BBB+.’

At the same time, however, Fitch affirmed the IFS ratings for Arch Capital Group and its subsidiaries at ‘A+’ with a stable rating outlook.

Fitch said it is confident about Arch Capital’s “diversified market position” in both insurance and reinsurance, as well as its “solid capitalization and well-managed reserve risk.” But it is concerned, in part, about “possible adverse reserve development due to the relatively large portion of casualty reserves and potential risks associated with its expanding [post-merger] mortgage operations.”

A.M. Best said that its financial strength ratings of A+ (Superior) and the long-term issuer credit ratings of “aa-” for Arch Reinsurance and its affiliates remain unchanged now that Arch’s acquisition is complete. But the credit ratings remain under review with developing implications.

Additionally, A.M. Best’s long-term issuer credit ratings of “a-” and the long-term issuer credit ratings for Arch Capital Group remain under review with developing implications.

Sources: Moody’s, A.M. Fitch Ratings, A.M. Best