Best Revises Alterra Capital and Operating Subs Outlook to Stable

June 21, 2012

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 and its affiliated operating companies.

Best also revised the outlook to stable from negative and affirmed the ICR of “bbb” of Alterra Bermuda’s parent company, Alterra Capital Holdings Limited, as well as all of the 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.

The ratings reflect the organization’s “solid financial performance and strong risk-adjusted capitalization,” said Best. “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.”

Best also pointed out that “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.”

Best explained that 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.

The reason Best put Alterra’s ratings under review in August 2011 was due to the “departure of a key executive,” which Best described as a “material change in the management structure, which could have potentially introduced uncertainty to the organization.” Best said it has “since continued to monitor Alterra and has gained a level of comfort with the current management structure and its core strategy.”

As partial offsetting the positive rating attributes Best cited “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.”

Best summarized the companies and debt ratings affected by its actions as follows:
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 percent senior secured notes, due 2017
Alterra Finance, LLC (guaranteed by Alterra Capital Holdings Limited)— –“bbb” on $350 million 6.25 percent 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

Source: A.M. Best

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