Fitch Affirms Montpelier's Ratings Following Acquisition by Endurance

CHICAGO--()--Fitch Ratings has removed the ratings of Montpelier Re Holdings Ltd. (MRHL) and its subsidiaries (collectively MRH) from Rating Watch Negative and affirmed them at their current levels. This includes MRHL's 'A-' Issuer Default Rating (IDR) and Montpelier Reinsurance Ltd.'s 'A' Insurer Financial Strength (IFS) rating. Fitch has subsequently withdrawn the ratings of MRHL. The actions follow the close of the company's acquisition by Endurance Specialty Holdings Ltd. (ENH) for $1.8 billion. The Rating Outlook is Stable. A complete list of rating actions follows at the end of this release.

KEY RATING DRIVERS

The affirmation of MRH's ratings reflects Fitch's view of ENH's strong credit quality and reasonable integration plan for MRH. Fitch considers the combined ENH-MRH as having a stronger profile than MRH standalone and in line with an 'A' IFS rating. Fitch does not provide public ratings on ENH or its pre-acquisition insurance subsidiaries at this time.

Fitch views the transaction as an overall credit positive as the larger, more diversified combined organization should have a somewhat improved competitive position to combat the adverse reinsurance market conditions. This is particularly the case for MRH, which had a small market position and size/scale and a concentration risk in the challenging property catastrophe reinsurance business.

Fitch considers ENH-MRH to have a 'medium' market position and size/scale. Pro forma annual gross premiums written and net premiums written (NPW) total approximately $3.6 billion and $2.6 billion, respectively, with $4.1 billion of pro forma GAAP common shareholders' equity.

ENH-MRH's business mix is diversified with pro forma 2014 NPW split approximately 57% reinsurance (including 20% property catastrophe reinsurance), 33% insurance, and 10% Lloyds of London.

Pro forma for the acquisition, financial leverage is near 17%, with no new debt issued to finance the purchase. Pro forma operating leverage (NPW-to-shareholders' equity) for ENH-MRH is conservative at about 0.5x.

RATING SENSITIVITIES

The key rating triggers that could result in a downgrade to MRH include material declines in ENH's capitalization that caused net written premiums-to-equity ratio to exceed 1.0x; financial leverage ratio maintained above 25%; run-rate fixed charge coverage of less than 5x; and accident year combined ratios in excess of 100% for three consecutive years.

Also, deterioration in reinsurance sector fundamentals or consolidation in the reinsurance landscape that weakens ENH-MRH's competitive position, operating profile or overall profitability could lead to a downgrade.

The key rating triggers that could result in an upgrade include enhanced scale with continued growth in equity, while maintaining its relative competitive position in the challenging market environment; financial leverage ratio maintained below 25%; maintaining favorable run-rate earnings and manageable volatility, with a combined ratio in the low-to-mid-90s.

FULL LIST OF RATING ACTIONS

Fitch has removed the following ratings from Rating Watch Negative, affirmed with a Stable Outlook and subsequently withdrawn them, as the rated entities were dissolved and no longer exist following the purchase by ENH, which has assumed the existing debt and preferred securities of MRH:

Montpelier Re Holdings Ltd.

--Issuer Default Rating (IDR) at 'A-';

--$300,000,000 4.7% senior notes due Oct. 15, 2022 at 'BBB+'.

Montpelier Capital Trust III

--$100,000,000 floating rate trust preferred securities due March 30, 2036 at 'BBB-'.

Fitch has removed the following rating from Rating Watch Negative and affirmed with a Stable Outlook:

Montpelier Reinsurance Ltd.

--Insurer Financial Strength (IFS) rating at 'A'.

The ratings were not reviewed with respect to Fitch's updated insurance notching criteria published July 14, 2015.

Additional information is available on www.fitchratings.com

Applicable Criteria

Insurance Rating Methodology (pub. 14 Jul 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=868367

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=988969

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=988969

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst:
Brian C. Schneider, CPA, CPCU, ARe, +1-312-606-2321
Senior Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Christopher A. Grimes, CFA, +1-312-368-3263
Director
or
Committee Chairperson:
Julie A. Burke, CPA, CFA, +1-312-368-3158
Managing Director
or
Media Relations:
Alyssa Castelli, New York, +1-212-908-0540
alyssa.castelli@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Brian C. Schneider, CPA, CPCU, ARe, +1-312-606-2321
Senior Director
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Christopher A. Grimes, CFA, +1-312-368-3263
Director
or
Committee Chairperson:
Julie A. Burke, CPA, CFA, +1-312-368-3158
Managing Director
or
Media Relations:
Alyssa Castelli, New York, +1-212-908-0540
alyssa.castelli@fitchratings.com