A.M. Best Analysts Affirms Montpelier Ratings

May 23, 2013

A.M. Best Co. this week [May 22] affirmed the financial strength rating of A [Excellent] and issuer credit rating [ICR] of “a” of Bermuda’s Montpelier Reinsurance Ltd.

Additionally, A.M. Best has affirmed the ICR of “bbb” and debt ratings of the parent company, Bermuda-based Montpelier Re Holdings Ltd.

The outlook for all ratings is stable.

Best analysts said the ratings reflect Montpelier Re’s “excellent risk-adjusted capitalization, solid long-term operating performance, diversified business profile, good competitive position, experienced management team and strong enterprise risk management framework.”

Best  continued: “Partially offsetting these strengths is Montpelier Re’s susceptibility to low frequency, high severity losses as a global property catastrophe focused reinsurer. However, the company’s risk-adjusted capital levels have been stress tested to withstand significant catastrophe losses, thereby mitigating this concern. The stable outlook reflects Montpelier Re’s overall financial flexibility, access to the capital markets and adequate rate environment in its targeted lines of business.”

While Montpelier Re’s business activities are concentrated in catastrophe-exposed property lines of business, its Lloyd’s Syndicate 5151 platform provides additional diversification in terms of business mix, geographic spread and distribution capabilities.

Best added that Montpelier Re continues “to follow a prudent underwriting strategy to limit the potential accumulation of losses from a single large catastrophic event. Montpelier Re’s management monitors its underwriting constraints relative to capital-based limits established by its board of directors and diversifies its exposure around the world to achieve a desired optimal spread of risk.”

Rating factors that could lead to a positive outlook and/or rating upgrades include Montpelier Re maintaining strong risk-adjusted capital levels and the continuation of its long-term, consistently strong operating profitability relative to its peer group.

Rating factors that could lead to a negative outlook and/or a downgrading of the ratings include outsized catastrophe or investment losses relative to the company’s peer group, unfavorable operating profitability trends and a significant decline in its risk-adjusted capital that would not be supportive of the current rating level.

The following debt ratings have been affirmed:

Montpelier Re Holdings Ltd.

  • “bbb” on $300 million 4.7% senior unsecured notes, due 2022
  • “bb+” on $150 million 8.875% fixed rate perpetual non-cumulative preferred shares

The following indicative ratings have been affirmed under the shelf registration:

Montpelier Re Holdings Ltd.

  • “bbb” on senior unsecured debt
  • “bbb-” on subordinated debt
  • “bb+” on preferred stock

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