Best Upgrades Validus Re’s Ratings; Outlook Revised to Stable

February 6, 2012

A.M. Best Co. has upgraded the financial strength rating (FSR) to ‘A’ (Excellent) from ‘A-‘ (Excellent) and issuer credit rating (ICR) to “a” from “a-” of Bermuda-based Validus Reinsurance, Ltd., as well as the ICR to “bbb” from “bbb-“and debt ratings of the parent company, Validus Holdings, Ltd.

Best also revised the outlook for all of the ratings to stable from positive.

The ratings reflect Validus Re’s “solid risk-adjusted capitalization, favorable operating performance since inception, experienced management team, excellent enterprise risk management program and prudent operating strategies,” Best explained. “Further supporting these ratings is the support of Validus Holdings, which provides financial flexibility as a publicly traded company on the New York Stock Exchange.”

As partial offsetting factors Best cited Validus Re’s “susceptibility to low frequency, high severity events as a property catastrophe focused reinsurer.” However, Best also indicated that the company’s “risk-adjusted capital remains at levels that have been stress tested to absorb significant catastrophe losses, thus, mitigating this concern.”

The stable outlook reflects Best’s “expectation that the group will continue to produce favorable long-term operating results and maintain excellent risk-adjusted capitalization, which is supportive of its current rating level.”

The ratings report also pointed out that since its formation in 2005, “Validus Holdings has grown through organic growth and acquisitions. In July 2007, Validus Holdings acquired Talbot Holdings Ltd. (Talbot), which enhanced the business profile of the group by diversifying the company’s revenues to include other lines of business, spreading risk exposures geographically and expanding its distribution channels. This acquisition has served to complement the organic growth of revenues while diversifying Validus Holdings’ exposure and enhancing its business profile.

“Validus Holdings has demonstrated its risk management capabilities and prudent risk selection as evidenced by its solid underwriting performance and overall operating results compared to its peers during a very difficult 2008 and 2011. This will increasingly become more challenging as the company grows and develops newer operating platforms and expands its business profile.

“Rating factors that could lead to a positive outlook or additional rating upgrades for Validus Re would be the continuation of long-term, consistently strong operating profitability relative to its peer group and maintaining strong risk-adjusted capital levels.

“The rating factors that could lead to a negative outlook or a downgrading of the company’s ratings 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:
Validus Holdings, Ltd.—
— to “bbb” from “bbb-” on $250 million 8.875 percent senior unsecured notes, due January 2040

The following indicative ratings for securities available under the shelf registration have been upgraded:

Validus Holdings, Ltd.—
— to “bbb” from “bbb-” on senior unsecured debt
— to “bbb-” from “bb+” on subordinated debt
— to “bb+” from “bb” on preferred stock

Source: A.M. Best

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