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Validus Holdings (VR) and its Units Receive Rating Action

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Validus Reinsurance, Ltd., an affiliate of Validus Holdings, Ltd. , recently received rating action from credit rating giant A.M. Best. The credit rating agency has affirmed the Financial Strength Rating (FSR) of A (Excellent) and Long-Term Issuer Credit Rating (Long-Term ICR) of “a” of the unit. 
 
Also, the rating agency affirmed FSRs of A and the Long-Term ICRs of “a” of the other units of the Zacks Rank #3 (Hold) insurance broker – Western World Insurance Company, Stratford Insurance Company and Tudor Insurance Company. The outlook remained stable for the FSRs and positive for the Long-Term ICRs. 
 
This apart, the credit rating agency revised the Long-Term ICR outlook of Zurich, Switzerland-based Validus Reinsurance Ltd. (a subsidiary of Validus Holdings) from stable to positive. A.M. Best also affirmed the FSR of A and the Long-Term ICR of “a “of the entity. The outlook of the FSR remained stable. 
 
In addition, A.M. Best affirmed the Long-Term ICR of “bbb” and the Long-Term Issue Credit Ratings (Long-Term IR) of Validus Holdings, the parent company. The outlook of these ratings remained positive. 
 
Validus Reinsurance’s ratings affirmation reflects its solid risk-adjusted capitalization, historically strong operational performance, experienced management team and an exemplary enterprise risk management program. Moreover, Validus Holdings’ financial flexibility as a publicly traded company also supported the ratings affirmation. 
 
However, Validus Reinsurance’s is a catastrophe-focused reinsurer, which exposes it to catastrophe losses as well as intense competition from capital markets. Factors like these can partially offset the positives that drove the ratings. Nonetheless, the unit maintains risk-adjusted capital at levels that can withstand stress tests with respect to the adverse impact of catastrophe losses.
 
The positive Long-Term ICR outlook signifies that the credit rating giant is confident about the group’s ability to deliver sustained long-term operating results alongside maintaining brilliant risk-adjusted capitalization. Continued long-term solid operating profitability and retention of robust risk-adjusted capital levels can result in a rating upgrade. 
 
However, outsized underwriting losses, which can lead to a considerable decline in risk-adjusted capital, can lead to an outlook revision or a rating downgrade. 
 
Notably, shares of Validus Holdings gained 21.60% in the last one year and outperformed the Zacks categorized Insurance Broker industry’s increase of 18.15%. We believe that solid operational performance and positive rating affirmations like these can drive the stock higher in the future.
 

 
Rating affirmations or upgrades from credit rating agencies play an important role in retaining investor confidence as well as in maintaining credit worthiness of a stock. On the other hand, rating downgrades not only damage business but also increase the cost of future debt issuances. We believe that such ratings will help the insurance broker to retain investor confidence and write more businesses going forward.
 
Stocks to Consider
 
Some better-ranked stocks from the same space include Blue Capital Reinsurance Holdings Ltd. , Marsh & McLennan Companies, Inc. (MMC - Free Report) and Erie Indemnity Company (ERIE - Free Report) . Each of these stocks holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
 
Blue Capital provides collateralized reinsurance in the property catastrophe market. The company delivered positive surprises in three out of the last four quarters with an average beat of 27.34%. 
 
Marsh & McLennan is a professional services firm that offers advice and solutions in the areas of risk, strategy, and people worldwide. The company delivered positive surprises in two of the last four quarters with an average beat of 2.33%.
 
Erie Indemnity operates as a managing attorney-in-fact for the subscribers at the Erie Insurance Exchange in the United States. The company delivered positive surprises in all of the last four quarters, with an average beat of 15.03%.
 

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