TEXT - Fitch raises Validus Holdings Ltd ratings

Thu Feb 21, 2013 11:25am EST

Feb 21 - Fitch Ratings today upgraded the ratings of Validus Holdings, Ltd.
 (Validus). These rating upgrades include Validus' senior unsecured debt
rating, which was upgraded to 'BBB+' from 'BBB', and the Insurer Financial
Strength (IFS) rating of Validus Reinsurance, Ltd. (Validus Re), which was
upgraded to 'A' from 'A-'. The Rating Outlook is Stable. A complete list of 
rating actions is provided at the end of this release.

KEY RATING DRIVERS

The ratings upgrade reflects Validus' solid operating performance and internal 
capital generation since its inception in late 2005.  The upgrade also reflects 
that the company's underwriting performance, while volatile, compares favorably 
to other property catastrophe reinsurers rated by Fitch when viewed on a 
multi-year rolling average basis.

Fitch notes favorably that Validus has produced an operating and underwriting 
profit in each year of its existence. This period includes 2011, when record 
levels of international catastrophe losses caused many of Validus' comparably 
rated peers to report significant annual underwriting and operating losses. 

Fitch observes that the company's share of global catastrophe losses since its 
inception, while significant in some cases, has been manageable and consistent 
with levels that might be expected from a reinsurer of Validus' size and focus.

Most recently, Validus reported $408 million of net earnings in 2012, driven by 
a solid combined ratio of 86.8%, despite $361 million of net pre-tax losses and 
loss adjustment expenses from Superstorm Sandy in the fourth quarter of 2012. 

Fitch believes that Validus uses sound risk management processes to manage its 
exposure to potential catastrophe-related losses by geographic zone and relative
to its capital base. Validus' low underwriting leverage enables the company to 
preserve capital during periods that include underwriting volatility.

Validus' capital ratios (such as net premium to equity and assets to equity) 
have consistently remained well within tolerances for the current rating level. 
Fitch expects this trend to continue for the foreseeable future.

The balance sheet risk is relatively modest, as its investment portfolio is 
dominated by highly rated fixed income investments that fared well during 
periods of capital market volatility. There is relatively little risk of 
significant adverse loss development from the company's largely short-tail 
underwriting liabilities.

Validus' ratings continue to recognize the company's significant exposure to 
earnings and capital volatility derived from its property catastrophe 
reinsurance products.

RATING SENSITIVITY

Key rating triggers that could generate longer term positive rating pressure 
include a prolonged period during which Validus outperformed comparably rated 
peers with respect to underwriting performance and overall profitability, 
continued strong risk adjusted capitalization metrics, and enhanced competitive 
positioning and scale in the company's key product lines.

Key rating triggers that could result in a ratings downgrade include an increase
in underwriting leverage (measured by traditional net premiums written to equity
ratios) to levels at or above 0.7 times (x) from recent levels of 0.4x. 
Likewise, an increase in Validus' 1-100 and 1-250 year per event catastrophe 
probable maximum losses (PML's) to 30% (currently 22%) and 40% (currently 27%) 
of total equity, respectively, could result in a downgrade.

Additionally, failure to maintain a run rate average combined ratio in the 
mid-80%'s, which approximates Validus' average result from 2008 through 2012, 
could result in a ratings downgrade. 

Fitch could also downgrade the company's ratings if Validus were to suffer 
catastrophe losses that were unfavorably inconsistent with its own internally 
modeled results or that resulted in earnings and/or capital declines that were 
significantly worse than comparably rated peers.

A material increase in Validus' debt-to-capital ratio to levels in excess of 25%
or decrease in run-rate interest coverage ratios to the low single digits for a 
period of consecutive years could lead Fitch to downgrade the company's debt 
ratings.

Fitch has upgraded the following ratings and assigned a Stable Rating Outlook:

Validus Holdings, Ltd.

--Issuer Default Rating (IDR) to 'A-' from 'BBB+';

--$250 million of 8.875% senior unsecured notes due 2040 to 'BBB+' from 'BBB';

--$150 million of 9.07% junior subordinated deferrable debentures due June 2036 
to 'BBB-' from 'BB+';

--$140 million of 8.48% junior subordinated deferrable debentures due June 2037 
to 'BBB-' from 'BB+'.

Validus Reinsurance, Ltd.

--IFS to 'A' from 'A-'.

Fitch has upgraded the following ratings to reflect parent company guarantees in
place and has also withdrawn the following ratings, as they no longer possess 
analytical relevance for Fitch's rating coverage: 

Flagstone Reinsurance Holdings, S.A. 

--$120 million of floating rate subordinated debentures due Sept. 15, 2036 to 
'BBB-' from 'BB+';

--EUR13 million of floating rate subordinated debentures due Sept. 15, 2036 to 
'BBB-' from 'BB+';

--$25 million of floating rate subordinated debentures due Sept. 15, 2037 to 
'BBB-' from 'BB+'.

Flagstone Finance S.A.

--Long-term IDR to 'A-' from 'BBB+';

--$100 million of floating rate subordinated debentures due July 30, 2037 to 
'BBB-' from 'BB+'.

Fitch has withdrawn the following rating, as it no longer possesses analytical 
relevance for Fitch's rating coverage: 

Flagstone Reassurance Suisse SA:

--IFS at 'A-'.

Fitch has withdrawn the following rating as the entity has ceased to exist:

Flagstone Reinsurance Holdings, S.A. 

--Long-term IDR at 'BBB+'.