A.M. Best Co. has upgraded the financial strength rating to A (Excellent) from A- (Excellent) and issuer credit rating (ICR) to “a” from “a-” of Montpelier Reinsurance Ltd. (Montpelier Re). Additionally, A.M. Best has upgraded the ICR to “bbb” from “bbb-” and debt ratings of the parent company, Montpelier Re Holdings Ltd. (Montpelier) [NYSE: MRH]. The outlook for all ratings has been revised to stable from positive. Both companies are domiciled in Pembroke, Bermuda. (See below for a detailed listing of debt ratings.) 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. Partially offsetting these strengths is the company’s susceptibility to low frequency, high severity losses as a global property catastrophe-focused reinsurer. 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 platform, syndicate 5151, provides additional diversification in terms of business mix, geographic spread and distribution capabilities. 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. Montpelier Re’s current financial leverage measures remain in line with its rating level. A.M. Best expects the company to maintain financial leverage as measured by debt and preferred-to-total capital at 25% or below, while fixed charge coverage for low catastrophe years is expected to remain in the low double-digit range. Rating factors that could lead to a positive outlook or additional rating upgrades include Montpelier Re maintaining strong risk-adjusted capital levels and the continuation of long-term, consistently strong operating profitability relative to its peer group. The rating factors that could lead to a negative outlook or rating downgrades include outsized catastrophe or investment losses relative to its peer group, unfavorable operating profitability trends and a significant decline in risk-adjusted capital that would not be supportive of the current rating level.
The following debt ratings have been upgraded:Montpelier Re Holdings Ltd.—-- to “bbb” from “bbb-” on $250 million 6.125% senior unsecured notes, due 2013-- to “bb+” from “bb” on $150 million 8.875% fixed rate perpetual non-cumulative preferred shares The following indicative ratings have been upgraded under the shelf registration: Montpelier Re Holdings Ltd.— -- to “bbb” from “bbb-” on senior unsecured debt-- to “bbb-” from “bb+” on subordinated debt-- to “bb+” from “bb” on preferred stock The methodology used in determining these ratings is Best’s Credit Rating Methodology , which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Insurance Holding Company and Debt Ratings”; “Understanding Universal BCAR”; and “Catastrophe Analysis in A.M. Best Ratings.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology. Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com. Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.