Fitch Affirms Validus' Ratings; Outlook Stable

Fitch Ratings has affirmed the ratings of Validus Holdings, Ltd. (Validus). These rating actions include Validus' senior unsecured debt rating, which was affirmed at 'BBB+' and the Insurer Financial Strength (IFS) rating of Validus Reinsurance, Ltd. (Validus Re), which was affirmed at 'A'. The Rating Outlook is Stable. A complete list of rating actions is provided at the end of this release.

KEY RATING DRIVERS

Validus' ratings reflect the company's continued solid operating performance and internal capital generation, solid capitalization, reasonable financial leverage, strong interest coverage, and well-managed reserve risk. These favorable factors are partially offset by potential volatility from large catastrophe-related events.

In addition, the ratings reflect Fitch's negative sector outlook on global reinsurance, as the fundamentals of the reinsurance sector have deteriorated with declining premium pricing and weakening of terms and conditions, particularly for property catastrophe risk. This is leading to consolidation in the reinsurance sector as companies aim to enhance their relative competitive positions.

Validus has a broad product portfolio of both reinsurance and property/casualty primary insurance, including the recently added Western World Insurance Group. Total company 2014 pro forma gross premiums written ($2.6 billion; including Western World), by segment was 42% Validus Re, 42% Talbot, 12% Western World and 4% AlphaCat, providing diversified sources of revenues and earnings. Fitch views this favorably as it provides the company flexibility to deemphasize various products when market conditions are poor and reduces its dependency on any single product line. Fitch expects that Validus will continue to manage successfully through various market conditions and cycles.

Profitability is strong, characterized by low and stable combined ratios and solid returns on average common equity (ROAE). The most recent five-year averages (2010-2014) are 83.5% and 9.7%, respectively. In 2014, Validus reported a combined ratio of 73.7% and ROAE of 13.2%. Validus has posted an underwriting profit and overall net income in every year of its nine-year operating history.

Validus has also reduced its per event probable maximum losses (PMLs) for most catastrophe perils, on an absolute basis and as a percent of total equity. Fitch expects that Validus will continue to maintain underwriting discipline should future market conditions continue to deteriorate.

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.

The company's financial leverage ratio is modest at 18% as of Dec. 31, 2014, up from 17.5% at year-end 2013. This increase reflects a 4% decline in 2014 shareholders' equity available to Validus from strong net earnings to $3.6 billion at Dec. 31, 2014, offset by share repurchases and dividends.

At year-end 2014 Validus' net written premiums-to-equity ratio remained at 0.5x, consistent with the levels reported by the company in each of the last several years. Validus' low underwriting leverage enables the company to preserve capital during periods that include underwriting volatility.

RATING SENSITIVITIES

Key rating triggers that could result in an upgrade include:

--Enhanced scale and relative competitive position with maintenance of current operating performance in the challenging reinsurance environment;

--Successfully integrating Western World Insurance Group;

--Continued growth in equity through earnings retention, while maintaining favorable run-rate earnings and low volatility, with a combined ratio under 90%.

Key rating triggers that could lead to a downgrade include:

--Deterioration in reinsurance sector fundamentals or consolidation in the reinsurance landscape that Fitch viewed as weakening Validus' competitive position, operating profile or overall profitability;

--Underwriting leverage (measured by net premiums written to equity) at or above 0.8x;

--An increase in Validus' 1-100 and 1-250-year per event catastrophe (MLs) to 30% (currently 17%) and 40% (currently 23%) of total equity, respectively;

--Financial leverage ratio in excess of 25% or interest coverage ratios in the low single digits for a period of consecutive years.

Fitch has affirmed the following ratings with a Stable Rating Outlook:

Validus Holdings, Ltd.

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

--$250 million of 8.875% senior unsecured notes due 2040 at 'BBB+';

--$150 million of 9.07% junior subordinated deferrable debentures due June 2036 at 'BBB-';

--$140 million of 8.48% junior subordinated deferrable debentures due June 2037 at 'BBB-'.

Validus Reinsurance, Ltd.

--IFS at 'A'.

Additional information is available at 'www.fitchratings.com'

Applicable Criteria and Related Research:

--Insurance Rating Methodology (September 2014).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=756650

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=980528

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