Best Affirms Montpelier Re ‘A-‘ Ratings; Raises Outlook to ‘Stable’

A.M. Best Co. has affirmed the financial strength rating (FSR) of A- (Excellent) and the issuer credit rating (ICR) of “a-” of Bermuda-based Montpelier Reinsurance Ltd. Concurrently, Best affirmed the ICR of “bbb-” and all existing debt ratings of Montpelier Re Holdings Ltd. Best also revised its outlook for the ratings to stable from negative.

“The affirmations and revised outlook follow A.M. Best’s review of Montpelier’s improved risk management and underwriting control systems following the 2005 catastrophe season, strengthening of risk-based capitalization and tangible reduction in the company’s risk profile,” said the announcement. “Further supporting the ratings is Montpelier’s highly experienced management team, customer-oriented focus and well established presence within the catastrophe market.”

Best noted: “Montpelier has implemented a prudent underwriting strategy to better manage the potential accumulation of losses from a single large catastrophic event. The underwriting strategy includes the reduction in writings of more volatile lines of business, purchasing more retrocessional protection, tightening aggregate policy limit constraints and reducing the company’s net exposure to its modeled 1 in 250 year catastrophe events. Montpelier’s management monitors theses underwriting constraints relative to capital based limits established by its Board of Directors and diversifies the company’s exposure around the world to achieve an optimal spread of risk.

“Furthermore, as part of its risk mitigation strategy, Montpelier formed Champlain Limited during 2006. Champlain Limited provides reinsurance protection to Montpelier through a two tranche $75 million catastrophe bond for exposures to first event U.S. or Japanese earthquakes.”

In addition Best indicated that “Montpelier exhibits significant financial flexibility with access to both equity and debt markets. Montpelier’s current financial leverage measures remain in line with its rating levels. A.M. Best expects the company to maintain financial leverage as measured by debt and preferred-to-total capital at 25 percent or below, while fixed charge coverage for low catastrophe years is expected to remain in the low double-digit range.

“Going forward, Montpelier will be challenged to maintain its competitive position as new capital enters the market and pricing begins to soften. A.M. Best will closely monitor the effectiveness of Montpelier’s improved risk management controls and procedures with each catastrophic event relative to its market share and peer group.”