A.M. Best Asserts Montpelier Ratings – Analyst Blog

On May 26, the rating agency A.M. Best Co. affirmed the financial and credit ratings of Montpelier Re Holdings Ltd. (MRH) and its subsidiaries, thereby reiterating its stable outlook for the firm’s operations.

Accordingly, A.M. Best asserted its issuer credit rating (ICR) of “bbb-” for Montpelier Re Holdings, reflecting a sound credit rating. Alongside, the rating agency affirmed its ratings on all existing debt, which are as follows:

·         “bbb-” on $250 million 6.125% senior unsecured notes, due 2013

·         “bbb-” on senior unsecured debt

·         “bb+” on subordinated debt

·         “bb” on preferred stock

·         “bb” on preferred securities

While a “bbb” rating reflects an adequate risk-adjusted view of the company’s debt obligations, the “bb” rating provides a fair view of the company’s preferred stock and securities. Besides, the negative outlook indicates a possible rating downgrade based on unfavorable market trends relative to the current rating level, and vice versa for a positive outlook assigned to any rating.

Besides, A.M. Best also reiterated the financial strength rating (FSR) of “A-” and the ICR of “a-” for both Montpelier Reinsurance Ltd. and Montpelier US Insurance Co. (“MUSIC”), the subsidiaries of Montpelier Re Holdings. This reflects an excellent outlook for the firm’s financial and credit quality.

The outlook for all ratings remains stable and reflects the company’s strong financial position and claims paying ability. Though Montpelier has experienced significant unrealized investment losses in 2008, the company’s risk management initiatives implemented in recent years and a strong balance sheet shielded and limited the impact of these challenges. These initiatives are reflected in Montpelier’s strong risk-adjusted capitalization, solid operating performance and enhanced organizational risk management structure.

As a result of these factors, Montpelier’s operating income in 2009 was approximately three times its operating income in 2008. Besides, the company experiences solid performance in its newer underwriting platforms – Syndicate 5151 and MUSIC ─ although these new platforms are fraught with execution risks.

A.M. Best rates the financial strength of insurance companies and the security of holding companies’ debt and preferred stock, thereby indicating their future performance. Although the rating actions principally reflect a favorable operating performance for the company and a significant market presence, A.M. Best remains concerned about Montpelier’s intense exposure to the areas where recurrent weather-related events severely hamper the company’s premium volume in its property and casualty line of operations. Such events, though low in frequency, mostly result in high-severity losses.

Overall, given the current market recovery, lower catastrophic activity and improvement in underwriting results, Montpelier is poised for fundamental growth once the economy rebounds to its historical highs in the intermediate term although we expect investment yields to remain under pressure in the near term.