[February 07, 2013]

A.M. Best Affirms Ratings of Validus Reinsurance, Ltd. and Validus Holdings, Ltd.

A.M. Best Co. has affirmed the financial strength rating of A (Excellent) and issuer credit rating (ICR) of "a" of Validus Reinsurance, Ltd. (Validus Re). Additionally, A.M. Best has affirmed the ICR of "bbb" and debt ratings of the parent company, Validus Holdings, Ltd. (Validus Holdings) (both domiciled in Bermuda) [NYSE: VR]. The outlook for all ratings is stable. (See below for a detailed listing of debt ratings.)

The ratings reflect Validus Re's solid risk-adjusted capitalization, favorable operating performance since inception, experienced management team, excellent enterprise risk management program and prudent operating strategies. Validus Re's ratings are further supported by Validus Holdings, which provides financial flexibility as a publicly traded company on the New York Stock Exchange.

Partially offsetting these strengths is Validus Re's susceptibility to low frequency, high severity events as a property catastrophe-focused reinsurer. However, the company's risk-adjusted capital remains at levels that have been stress tested to absorb significant catastrophe losses mitigating this concern. The stable outlook is reflective of A.M. Best's expectation that the group will continue to produce favorable long-term operating results and maintain excellent risk-adjusted capitalization, which is supportive of its current rating level.

Since its formation in the fourth quarter of 2005, Validus Holdings has grown through organic growth and acquisitions. In July 2007, Validus Holdings acquired Talbot Holdings Ltd., which enhanced the business profile of the group by diversifyng revenues to include other lines of business, spreading risk exposures geographically and expanding its distribution channels. This acquisition has served to complement the organic growth of revenues while also diversifying Validus Holdings' exposures and enhancing its business profile. In November 2012, Validus Holdings continued its expansion through the acquisition of Flagstone Re, which will further enhance its client base and scale.

Validus Holdings has demonstrated its risk management capabilities and prudent risk selection as evidenced by its solid underwriting performance and overall operating results compared to its peers during a very difficult 2008 and again in 2011. This will increasingly become more challenging as the company grows and develops newer operating platforms and expands its business profile.

Rating factors that could lead to a positive outlook or rating upgrades would be the continuation of Validus Re's long-term, consistently strong operating profitability relative to its peer group and maintaining strong risk-adjusted capital levels. The rating factors that could lead to a negative outlook or rating downgrades include outsized catastrophe or investment losses relative to the organization's peer group, unfavorable operating profitability trends and a significant decline in risk-adjusted capital that would not be supportive of the current rating level.

The following debt rating has been affirmed:

Validus Holdings, Ltd.-

-- "bbb" on $250 million 8.875% senior unsecured notes, due January 2040

The following indicative ratings for securities available under the shelf registration have been affirmed:

Validus Holdings, Ltd.-

-- "bbb" on senior unsecured debt

-- "bbb-" on subordinated debt

-- "bb+" on preferred stock

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: "Risk Management and the Rating Process for Insurance Companies"; "Understanding Universal BCAR"; "Catastrophe Analysis in A.M. Best Ratings"; "Insurance Holding Company and Debt Ratings"; and "Rating Members of Insurance Groups." Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

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