Fitch Upgrades Validus' Ratings; Outlook Stable

  Fitch Upgrades Validus' Ratings; Outlook Stable

Business Wire

NEW YORK -- February 21, 2013

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+'.

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

Applicable Criteria and Related Research:
--Insurance Rating Methodology (Jan. 11, 2013).

Applicable Criteria and Related Research:
Insurance Rating Methodology -- Amended
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=698731

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Contact:

Fitch Ratings
Primary Analyst:
Greg Dickerson, +1-212-908-0220
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Brian Schneider, +1-312-606-2321
Senior Director
or
Committee Chairperson:
Jeff Mohrenweiser, +1-312-368-3158
Senior Director
or
Media Relations:
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com
 
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