A.M. Best Co. announced today that it has downgraded the financial strength rating for property reinsurer Montpelier Reinsurance Ltd. in Bermuda to "A-minus" from "A."
The Oldwick, N.J.-based rating agency downgraded existing debt ratings of the holding company also, stating that all ratings remain under review with negative implications.
Downgrades for Montpelier came in spite of the fact that the company raised $600 million in a public equity offering recently.
Best said its downgrade actions are attributable to deterioration in Montpelier's risk-adjusted capitalization following losses incurred from Hurricanes Katrina and Rita, which accounted for a substantial level of the company's shareholders' equity on June 30.
In spite of the equity offering, Best said it believes that a reduction in the company's risk profile and/or additional capital over the near term will be necessary to stabilize the current ratings.
"As a global property catastrophe reinsurer, Montpelier is subject to high severity losses due to catastrophic events occurring around the world. However, the accumulation of losses resulting from Hurricane Katrina was outside of A.M. Best's expectation," the rating agency said in a statement. Best added, however, that extensive discussions with Montpelier's management, lead the rating firm to believe that a prudent underwriting strategy is now being implemented to better manage the potential accumulation of losses from a single large catastrophic event.
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