Best Affirms Validus’ ‘A’ Ratings; Outlook Stable

February 8, 2013

A.M. Best Co. has affirmed the financial strength rating of ‘A’ (Excellent) and issuer credit rating (ICR) of “a” of Validus Reinsurance, Ltd., as well as the ICR of “bbb” and debt ratings of the parent company, Validus Holdings, Ltd. Both companies are domiciled in Bermuda. The outlook for all of the ratings is stable

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 said. “Validus Re’s ratings are further supported by Validus Holdings, which provides financial flexibility as a publicly traded company on the New York Stock Exchange.”

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

Best said the stable outlook is reflective of its “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.

“Since its formation in the fourth quarter of 2005, Validus Holdings has grown through organic growth and acquisitions. In July 2007, Validus Holdings acquired Talbot Holdings Ltd., which enhanced the business profile of the group by diversifying 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 also diversifying Validus Holdings’ exposures and enhancing its business profile. In November 2012, Validus Holdings continued its expansion through the acquisition of Flagstone Re, which will further enhance its client base and scale.”

Best’s report also noted that “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 again in 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 rating upgrades would be the continuation of Validus Re’s 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 rating downgrades include outsized catastrophe or investment losses relative to the organization’s peer group, unfavorable operating profitability trends and a significant decline in risk-adjusted capital that would not be supportive of the current rating level.

Best summarized the debt ratings as follows:
The following debt rating has been affirmed:
Validus Holdings, Ltd.—
— “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 affirmed:
Validus Holdings, Ltd.—
— “bbb” on senior unsecured debt
— “bbb-” on subordinated debt
— “bb+” on preferred stock

Source: A.M. Best

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