S&P Raises Validus’ Rating to ‘BBB’; Assigns ‘A-‘ Rating to Validus Re

August 25, 2010

Standard & Poor’s Ratings Services has raised its counterparty credit rating on Validus Holdings Ltd. to ‘BBB’ from ‘BBB-‘. S&P has also assigned its ‘A-‘ counterparty credit and financial strength ratings to Validus’ insurance subsidiary, Validus Reinsurance Ltd. The outlook on both of these entities is stable.

“The upgrade reflects Validus’ successful integration and retention of the profitable portions of IPC’s book of business, which has resulted in an enhanced competitive position through the significant expansion of its presence in the global property catastrophe market and a larger balance sheet,” explained credit analyst Tracy Dolin.

S&P noted that the “combined group–with $2 billion in pro forma gross premiums on a capital base of $4.1 billion–is one of the largest reinsurance writers in Bermuda and among the top 20 globally in terms of premiums written.

“The combined company’s capital base has provided the group with greater capacity to participate in a variety of programs and market opportunities.”

Dolin added: “We consider Validus’ capitalization to be strong on a qualitative business.” As of June 30, 2010, the consolidated group had “extremely strong capital adequacy,” S&P continued, adding that it is “above the rating level,” based on S&P’s capital model.

However, S&P also pointed out that Validus’ capital “could be exposed to volatility resulting from its increased property catastrophe focus (in the near term) because of the inclusion of IPC’s book. However, the earnings diversification the Talbot segment provides and underwriting actions aimed at reducing its probable maximum loss aggregates continue to mitigate this risk somewhat”.

In conclusion S&P said that “given the potential for significant earnings volatility, the company’s rapid expansion strategy, the group’s strategic risk management practices (which are only adequate), and other factors, another upgrade is unlikely over the next 18-24 months.”

S&P also, indicated that it “would consider a downgrade if the company did not meet expectations, its ERM capabilities deteriorate, its capitalization or operating performance worsens, the company completes an acquisition that could compromise its financial profile, or it demonstrates weak financial flexibility following an unforeseen capital event.”

Source: Standard & Poor’s

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