A.M. Best Revises Outlook To Stable For Alterra Capital Holdings Ltd. And Its Operating Subsidiaries

A.M. Best Co. has revised the outlook to stable from negative and affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of “a” of Alterra Bermuda Limited (Alterra Bermuda) and its affiliated operating companies.

Concurrently, A.M. Best has revised the outlook to stable from negative and affirmed the ICR of “bbb” of Alterra Bermuda’s parent company, Alterra Capital Holdings Limited (Alterra) [NASDAQ: ALTE]. A.M. Best also has revised the outlook to stable from negative and affirmed all debt ratings of Alterra, Alterra USA Holdings Limited, Alterra Finance, LLC (both domiciled in Delaware) and Alterra Capital Trust I. The above named companies are domiciled in Bermuda, unless otherwise specified. (See below for a detailed listing of the companies and ratings.)

The ratings reflect the organization’s solid financial performance and strong risk-adjusted capitalization. Alterra continues to enhance its enterprise risk management framework. In part, this is evidenced by Alterra’s solid financial results for year-end 2011, which was a challenging year for the reinsurance sector as a whole and one of the costliest catastrophe years on record. Alterra has platforms and operations in major global underwriting markets, which gives it flexibility to optimize its underwriting portfolio composition. The organization is well-positioned to execute its strategy going forward.

The revised outlook for Alterra and its subsidiaries reflects the stable execution of the company’s business plan and strategy since its formation from the merger of Max Capital Group Ltd. and Harbor Point Limited in 2010. In August 2011, A.M. Best viewed the departure of a key executive as a material change in the management structure, which could have potentially introduced uncertainty to the organization. A.M. Best has since continued to monitor Alterra and has gained a level of comfort with the current management structure and its core strategy.

Partially offsetting these positive rating attributes is the current soft market in casualty classes of business, which represents a significant portion of Alterra’s risk portfolio, and a challenging investment climate that places increased pressure on underwriting profitability.

Rating factors that could lead to a downgrade or revision in the outlook to negative include unfavorable operating profitability trends, outsized catastrophe or investment losses relative to peers, significant adverse loss reserve development, a material decline in risk-adjusted capital and/or the departure of one or more key employees. Alternatively, factors that could lead to an upgrade include continued favorable operating profitability coupled with maintenance of strong risk-adjusted capital levels.

The FSR of A (Excellent) and ICRs of “a” have been affirmed for Alterra Bermuda Limited and its following operating affiliates:

• Alterra Europe plc

• Alterra America Insurance Company

• Alterra Excess and Surplus Insurance Company

• Alterra Reinsurance USA Inc.
The following debt ratings have been affirmed:

Alterra USA Holdings Limited (guaranteed by Alterra Capital Holdings Limited)—
--“bbb” on $100 million 7.2% senior secured notes, due 2017

Alterra Finance, LLC (guaranteed by Alterra Capital Holdings Limited)—
--“bbb” on $350 million 6.25% senior unsecured notes, due 2020
The following indicative ratings under the current shelf registration have been affirmed:

Alterra Capital Holdings Limited
--“bbb” on senior unsecured debt
--“bbb-” on subordinated debt
--“bb+” on preferred stock

Alterra USA Holdings Limited (guaranteed by Alterra Capital Holdings Limited)—
--“bbb” on senior secured debt
--“bbb-” on subordinated debt

Alterra Capital Trust I (guaranteed by Alterra Capital Holdings Limited)—
--“bb+” on preferred securities

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”; “Understanding BCAR for Property/Casualty Insurers”; “Understanding Universal BCAR”; “Catastrophe Analysis in A.M. Best Ratings”; “Insurance Holding Company and Debt Ratings”; and “Rating Members of Insurance Groups.” 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.

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