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TEXT-S&P affirms Montpelier Re Holdings Ltd rating
October 3, 2012 / 3:05 PM / in 5 years

TEXT-S&P affirms Montpelier Re Holdings Ltd rating

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 
"here
&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

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