Montpelier Re?s financial strength rating was cut by Fitch Ratings to BBB from A- on Friday, a day after the reinsurer reported a higher than expected third quarter loss of $875.1 million, or $12.16 per share. The agency also cut Montpelier?s debt ratings to BB from BBB- and left all ratings on Rating Watch Negative.

The size of the company?s catastrophe losses ? at more than $1 billion ? suggest the risks it assumed were too concentrated for a reinsurer rated A-. The losses also undermine confidence in the underwriting abilities of the company and raise significant uncertainty about its performance in the face of future catastrophes, Fitch said.

Hurricanes and other catastrophes in the period cost Montpelier $972 million.

During the company?s earnings call last Thursday, an analyst asked whether an -A rating was crucial to having a successful renewal season in an environment where there is a shortage of capital and other companies have also been clobbered by the hurricanes.

Montpelier chief executive Anthony Taylor responded: ?Clearly, having a rating with ?b? in front would make life very difficult but it does rather depend what happens to the whole market. If the whole market went b rated then it would be a good rating.?

Montpelier is committed to remaining a property orientated operation and has no plans to diversify by ?writing tons of casualty business? which Mr. Taylor said might incidentally become much more competitive as others cut their property books and replace premium with non-cat exposed classes.

?We will continue to operate from one base and concentrate on underwriting core classes,? he said adding that property oriented companies like Montpelier must now adapt to the new order. ?That means reduce aggregate catastrophe exposure by means of changes in policy coverage and line size and by the purchase of traditional retrocession market covers and non-traditional capital market reinsurance to assist in limiting our tail exposures,? he said.

Montpelier sees an opportunity to forge partnerships with alternative capital sources to leverage its underwriting expertise. CFO Kip Oberting said that moves comes in the midst of expected continued growth in assumption of insurance risk by hedge funds and non-traditional vehicles as well as rating agency considerations resulting in increased financial market disintermediation for insurance risk.

?Our approach is not to run from this development but embrace it. We are actively pursuing non-traditional approaches to partner with capital providers to enable them to assume insurance risk,? Mr. Oberting said pointing to Montpelier?s co-sponsorship of Rockridge Re in the Cayman Islands this summer with hedge fund manager West End Capital Management. The new company with $90.9 million of capital was set up to offer retrocessional coverage solely to Montpelier Re, giving the reinsurer the capacity to write attractive high-layer, excessof- loss contracts in peak catastrophe zones, such as Florida, California and Japan.

?We intend to expand this strategy with respect to the capital intensive segments of our portfolio. The more we can define ourselves as a pricer, ratifier and transformer of insurance risk in our core markets the better. On the margin, this allows us to increase net income and or reduce capital needs both of which should favourably impact our expected rate of return on capital and ultimately growth in intrinsic value per share,? Mr. Oberting said. Montpelier shares closed at $18.66 on the New York Stock Exchange on Friday after reaching a 52-week low of $16.33 on Thursday.