Watford's underwriting risk coupled with the leveraged alternative investment strategy creates an elevated risk profile that could expose Watford on the asset and liability sides of the balance sheet. However, the skilled underwriting of Arch Capital Group Ltd. and the experienced investment acumen of HPS, along with cash flows produced by Watford's credit investment strategy, will help partially mitigate these risks. Additionally, A.M. Best has stress-tested risk-adjusted capitalization for simultaneous adverse underwriting and investment events and Watford appears to be adequately capitalized under those conditions.