(The following statement was released by the rating agency) Overview
-- Montpelier Re Holdings Ltd.
is refinancing its $228 million of outstanding senior notes with a new issue of $300 million 10-year senior notes.
-- We are rating the newly issued senior notes 'BBB' and affirming our ratings on Montpelier Re Holdings Ltd. and Montpelier Reinsurance Ltd.
-- The refinancing will produce only a modest change to leverage and no change to coverage.
Rating Action On Oct. 3, 2012, Standard & Poor's Ratings Services assigned its 'BBB' senior unsecured debt rating to "
&sid=949447&sind=A&" Re Holdings Ltd.'s $300 million senior note issue. At the same time, we affirmed our 'BBB' long-term counterparty credit ratings on Montpelier Re Holdings Ltd. and our 'A-' long-term counterparty credit and financial strength ratings on its core operating subsidiary, Montpelier Reinsurance Ltd. The outlook is stable.
Rationale
Montpelier Re Holdings Ltd. is refinancing its $228 million of outstanding senior notes with a new issue of $300 million 10-year senior notes. The refinancing will have a modest impact on the company's financial leverage and fixed-charge coverage ratios. Pro forma June 30, 2012, financial leverage would increase to 28.5% from 24.8%. Likewise, fixed-charge coverage for the first half of 2012 would remain at 8.4x. The refinancing removes the near-term refinancing risk associated with the upcoming June 30, 2013, maturity of the company's existing senior notes.
The rating affirmation reflects Montpelier's strong capital adequacy, strong enterprise risk management, and strong but volatile operating performance. Montpelier's significant exposure to catastrophe risk, limited competitive presence, and narrowly focused management offset these positive factors.
In the first half of 2012, Montpelier's operating performance improved from the same period in 2011 because of lower catastrophe losses. The combined ratio was 67.2% in the first six months of 2012 versus 142.3% in the comparable period of 2011. The return on revenue was 39.9% and negative 28.1%, respectively.
Outlook
The outlook is stable. We expect Montpelier to focus on property, property catastrophe, and short-tail specialty lines of business. In 2012, we expect gross premiums written to increase modestly, reflecting improved property catastrophe market conditions. Net writings should show less growth as a result of cessions to private quota shares.
We expect Montpelier's average long-term combined ratio to be about 75%-80%. We also expect capital adequacy to remain strong; average medium-term fixed-charge coverage to be at least 3x-5x; and financial leverage to be less than 30%. Accordingly, we do not expect Montpelier to be a negative outlier among its peers or breach its risk tolerances regarding future catastrophe losses.
Because of the company's limited competitive position, still-developing efforts to diversify into specialty lines of business, and narrowly focused management, we likely won't raise the ratings during the next 12 to 24 months. On the other hand, we could lower the ratings if Montpelier's financial position weakens as a result of a breach of its risk tolerances or negative outlier results regarding future catastrophe losses or significant earnings volatility from its noncatastrophe business lines.
Related Criteria And Research Holding Company Analysis, June 11, 2009 Ratings List Ratings Affirmed Montpelier Re Holdings Ltd. Counterparty Credit Rating Local Currency BBB/Stable/-- Senior Unsecured BBB Preferred Stock BB+ Montpelier Reinsurance Ltd. Counterparty Credit Rating Local Currency A-/Stable/-- Financial Strength Rating Local Currency A-/Stable/-- New Rating Montpelier Re Holdings Ltd. Senior Unsecured BBB
(Caryn Trokie, New York Ratings Unit)
((Caryn.Trokie@thomsonreuters.com; 646-223-6318; Reuters Messaging: rm://caryn.trokie.reuters.com@reuters.net))
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