A.M. Best Co. raised the issuer credit rating (“ICR”) to ‘bbb’ from ‘bbb-’ along with the debt ratings of Montpelier Re Holdings Ltd. (RE - Analyst Report). Concurrently, the credit rating agency upgraded the financial strength rating (“FSR”) to A (Excellent) from A- (Excellent) and ICR to ‘a’ from ‘a-’ of Montpelier Reinsurance Ltd., the company’s wholly owned operating subsidiary.
The outlook for all ratings has been revised to stable from positive.
The rating upgrade came on the back of Montpelier’s superior risk-adjusted capitalization, strong operational performances, broadened product offerings as well as its dominant position.
However, the company’s exposure to catastrophe losses somewhat dwarfs the positives.
Though Montpelier remains a property-catastrophe focused reinsurer, the Lloyd’s platform and syndicate 5151 offers business mix, geographic spread and distribution capabilities diversification for the company’s business. Also, the company’s prudent underwriting practices has assisted them to limit the losses that they might possibly incur from a single catastrophic event
A.M. Best expects Montpelier’s financial leverage to be around 25% or below with fixed charge coverage in the low double-digit band.
The outlook revision accounts for the company’s financial flexibility, capital markets accessibility and current rate environment in its targeted lines of business.
Nevertheless, if Montpelier continues to maintain solid risk-adjusted capital levels and delivers solid operating profitability relative to its peers, A.M. Best might consider outlook upgrades or rating upgrades.
On the contrary, outlook and ratings might be subject to a downside revision if Montpelier incurs sizable catastrophe or investment losses, operating profitability deteriorates, and risk-adjusted capital levels declines.
Recently, another credit rating agency, Fitch Ratings reiterated Issuer Default Rating (IDR) at 'A' of RenaissanceRe Holdings Ltd. (RNR - Analyst Report). Concurrently the rating agency also reiterated Insurer Financial Strength (IFS) rating at 'A+' of Renaissance Reinsurance Ltd., the company’s subsidiary. The outlook of the ratings is stable.
We believe, the company’s strong ratings scores will help retain investor confidence and augment its business going forward.
We retain our Outperform recommendation on Montpelier Re Holdings Ltd. The quantitative Zacks #2 Rank (short term Buy rating) for the company indicates slight boost on the stock over the near term.