Best Affirms Montpelier Re Ratings

April 15, 2005

A.M. Best Co. announced that it has affirmed the financial strength rating of “A “(Excellent) and the issuer credit rating of “a” of Bermuda-based Montpelier Reinsurance Ltd. Best also assigned the company an issuer credit rating of “bbb” and affirmed its debt rating of “bbb” on $250 million 6.125 percent senior unsecured notes due 2013, as well as all debt securities filed under a $1 billion shelf registration. All the ratings have a stable outlook.

“The ratings reflect Montpelier’s superior risk-based capitalization, excellent operating results, experienced management team and solid broker relationships,” said Best. “Since commencing operations, the company has established a diversified book of business focusing on property risk excess of loss, property pro-rata, property catastrophe, aviation liability, marine and personal accident catastrophe coverages.

The report also noted that “in 2004, Montpelier expanded into professional indemnity and casualty reinsurance, primarily medical malpractice and United Kingdom employers liability on an excess of loss basis. Montpelier’s participation in these lines of business remains below 10 percent of gross written premiums.”

“Montpelier produced a combined ratio of 78 percent in 2004 despite recording approximately $300 million in catastrophe losses while shareholders’ equity grew to $1.8 billion at December 31, 2004. The company’s success continues to be attributable to the implementation of strict underwriting and risk management controls, along with management’s selectivity in writing lines of business with more favorable returns. Furthermore, Montpelier’s underwriting is supported by the extensive use of sophisticated modeling and pricing systems.

“In March 2005, Montpelier Re declared and paid a $390 million special dividend to holders of common shares.” Best said it “was encouraged by management’s decision to return excess capital to shareholders in anticipation of a softening market rather than deploy capital to unfamiliar lines of business. Furthermore, Montpelier Re’s risk-based-capital remained in the superior range after the special dividend with both debt-to-adjusted capital and fixed charge coverage in the mid-teen range.”

As offsetting factors Best indicated that the “onset of softening in pricing for property covers,” could dampen expected returns and “Montpelier’s expansion into select casualty lines where pricing and reserve adequacy have not been proven.”

Best concluded that despite these concerns, it “expects Montpelier to continue to manage its capital base very conservatively within acceptable ranges to support its current ratings and meet the more stringent capital requirements for a newly established Bermuda entity.”

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