Fitch Affirms Validus' Ratings; Outlook Remains Positive

Fitch Ratings has affirmed the 'A-' Insurer Financial Strength (IFS) rating of Validus Reinsurance, Ltd. (Validus Re), the principal reinsurance operating subsidiary of Validus Holdings, Ltd. (Validus). Fitch has also affirmed Validus' 'BBB+' Issuer Default Rating (IDR), 'BBB' senior unsecured notes rating, and 'BB+' rating for Validus' junior subordinated debt instruments (see full rating list below). The Rating Outlook remains Positive.

The ratings action follows Fitch's normal periodic review of Validus' financial profile and recent performance. The affirmation reflects Validus' continued solid operating results relative to peers that focus on catastrophe reinsurance and other short tail specialty lines.

Most recently, Validus' performance for the first quarter of 2012 included record net earnings of $124 million and a solid combined ratio of 85%, despite $98 million (22 combined ratio points) of pre-tax notable losses, largely in connection with the sinking of the Costa Concordia cruise ship.

Fitch also notes favorably that Validus was able to produce a modest underwriting profit and a $21 million net profit in 2011, when many of its comparably rated peers generated significant underwriting losses and sizable negative net income. This favorable trend provides Fitch with increased confidence in the company's underwriting and risk management processes.

Key ratings triggers that could lead to an upgrade include Validus' ability to demonstrate continued solid performance, including underwriting results and overall profitability that outperform comparably rated peers over the next 12 to 18 months.

This assumes that the company also maintains solid capitalization with net written premium-to-equity and asset leverage ratios at or near recent levels of 0.5 times (x) and 2.3x, respectively, while loss reserve development remains neutral to favorable.

Key ratings triggers that could lead to a Negative Rating Outlook or a ratings downgrade include a significant deterioration in the company's underwriting performance relative to peers. Likewise, a weakening of Validus' capitalization metrics or a material increase in underwriting leverage (measured by traditional premiums written to equity ratios) to levels in excess of 1.0x or asset leverage to levels in excess of 3.0x could result in an Outlook revision or ratings downgrade.

In addition, 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 cause Fitch to downgrade the company's debt ratings.

Validus' ratings continue to reflect the company's record of strong underwriting profitability in periods that are not impacted by large catastrophe events. Validus' ratings also contemplate the company's solid capitalization, and high-quality and liquid investment portfolio that supports the company's loss reserves.

These favorable characteristics are partially offset by Validus' significant exposure to earnings and capital volatility derived from its property catastrophe reinsurance products, most recently evidenced by the company's roughly $191 million of combined losses from the Japanese and New Zealand earthquake events in 2011. Validus' ratings also reflect its comparatively short operating history and rapid growth, as well as the current competitive market conditions and low interest rate environment.

Fitch believes that Validus' capitalization provides adequate protection for the underwriting and investment risks the company faces. Fitch views Validus' capitalization as characterized by reasonable operating leverage ratios, annualized net premiums-to-equity of 0.5x for 2011, and a moderate debt-to-capital ratio (including hybrid securities) which was roughly 13% at March 31, 2012.

Fitch affirms the following ratings:

Validus Holdings, Ltd.

--IDR at 'BBB+'; Outlook Positive;

--8.875% senior unsecured notes due 2040 at 'BBB';

--9.07% junior subordinated deferrable debentures due June 2036 at 'BB+';

--8.48% junior subordinated deferrable debentures due June 2037 at 'BB+'.

Validus Reinsurance, Ltd.

--IFS at 'A-'; Outlook Positive.

Additional information is available at 'www.fitchratings.com'. The issuer did not participate in the rating process, or provide additional information, beyond the issuer's available 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' (Sept. 22, 2011).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=651018

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