A.M. Best Co. announced that it has downgraded the financial strength rating to “A-” (Excellent) from “A” (Excellent) and the issuer credit rating (ICR) to “a-” from “a” for Bermuda-based Montpelier Reinsurance Ltd. (Montpelier). Best said it has also downgraded the ICR to “bbb-” from “bbb” of Montpelier Re Holdings Ltd. (Montpelier Re) along with “all existing debt ratings. Ratings have been assigned to all debt securities recently filed under a $1 billion shelf registration. All ratings remain under review with negative implications.”
Best said: “The downgrades are attributable to deterioration in Montpelier’s risk-adjusted capitalization following losses incurred from Hurricanes Katrina and Rita, which accounted for a substantial level of the company’s shareholders’ equity at June 30, 2005. Although Montpelier’s $600 million public equity offering that immediately followed Hurricane Katrina was successful, A.M. Best believes that a reduction in the company’s risk profile and/or additional capital over the near term will be necessary to stabilize the current ratings. Accordingly, Montpelier’s ‘A-‘ (Excellent) rating will remain under review with negative implications pending the successful completion of an action plan in accordance with A.M. Best’s expectations.”
Best further explained that “as a global property catastrophe reinsurer, Montpelier is subject to high severity losses due to catastrophic events occurring around the world. However, the accumulation of losses resulting from Hurricane Katrina was outside of A.M. Best’s expectation. Following extensive discussions with the company’s management, A.M. Best’s opinion is that a prudent underwriting strategy is now being implemented to better manage the potential accumulation of losses from a single large catastrophic event.
“As a result of these catastrophic events in 2005, property catastrophe pricing is expected to increase, which should benefit returns, barring any other catastrophic events. A.M. Best expects Montpelier to manage its risk-adjusted capital and financial leverage ratios within acceptable ranges to support its new financial strength and debt ratings.”
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