September 4, 2012 / 2:15 PM / 5 years ago

TEXT-Fitch affirms Validus' ratings after acquisition announcement

Sept 4 - Fitch Ratings has affirmed the 'A-' Insurer Financial Strength
(IFS) rating of Validus Reinsurance, Ltd. (Validus Re), the principal
reinsurance operating subsidiary of Validus Holdings, Ltd. (Validus).
Fitch has also affirmed Validus' 'BBB+' Issuer Default Rating (IDR), 'BBB'
senior unsecured notes rating, and 'BB+' rated junior subordinated debt
instruments (see full rating list below). The Rating Outlook remains Positive.

The rating actions follow Validus' announcement that it will acquire Flagstone
Reinsurance Holdings, S.A. (Flagstone) in a transaction valued at $623 million,
including $148 million in cash and 0.1935x Validus voting common shares per
Flagstone share. The transaction is expected to close late in the fourth quarter
of 2012.

The affirmation reflects Fitch's belief that if the transaction is completed at
the terms described above, its effects should have a negligible impact on
Validus' historically strong operating performance or the high quality of its
balance sheet.

Financial leverage could increase modestly immediately following the transaction
but should remain well below median guidelines for Validus' current rating

While integration risks are present in any acquisition, Fitch's concerns in this
regard are partially mitigated by Validus' track record of successfully
integrating acquisitions, as well as Flagstone's relatively small size and
manageable infrastructure.

Fitch expects to review Validus during the fourth quarter of 2012 as part of its
regular review process and will reassess the company's ratings at that time, at
which point Fitch expects that it will either affirm Validus' ratings or upgrade
them by one notch.

Key ratings triggers that could lead to an upgrade include Validus' ability to
demonstrate continued solid performance, including underwriting results and
overall profitability that outperform comparably rated peers.

This assumes that the company also maintains solid capitalization with net
written premium-to-equity and asset leverage ratios at or near recent levels of
0.5x and 2.3x, respectively, while loss reserve development remains neutral to

Key ratings triggers that could lead to a Negative Rating Outlook or a ratings
downgrade include a significant deterioration in the company's underwriting
performance relative to peers. Likewise, a weakening of Validus' capitalization
metrics or a material increase in underwriting leverage (measured by traditional
premiums written to equity ratios) to levels in excess of 1.0x or asset leverage
to levels in excess of 3.0x could result in an Outlook revision or ratings

In addition, 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 cause Fitch to downgrade the
company's debt ratings.

Fitch affirms the following ratings:

Validus Holdings, Ltd.
--IDR at 'BBB+'; Outlook Positive;
--8.875% senior unsecured notes due 2040 at 'BBB';
--9.07% junior subordinated deferrable debentures due June 2036 at 'BB+';
--8.48% junior subordinated deferrable debentures due June 2037 at'BB+'.

Validus Reinsurance, Ltd.
--IFS at 'A-'; Outlook Positive.

Additional information is available at ''. The ratings above
were unsolicited and have been provided by Fitch as a service to investors. The
issuer did not participate in the rating process other than through the medium
of its public disclosure.

Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Sept. 22, 2011).

Applicable Criteria and Related Research:
Insurance Rating Methodology
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below