Financial ratings firm AM Best Co. has downgraded its ratings on Montperlier Re Holdings Ltd., a Bermuda reinsurer expected to see a large percentage of its capital sapped by Hurricane Katrina claims.

Montpelier, which quickly tapped capital markets for $600 million to shore up its capital position, was unable to avoid a one-notch ratings downgrade, bringing its financial strength rating to A- (Excellent) from A (Excellent). The company's issuer credit rating was dropped to "a-" from "a" for Montpelier Reinsurance Ltd.

And AM Best downgraded the ICR to "bbb-" from "bbb" of Montpelier Re Holdings Ltd. as well as downgrading all existing debt ratings.Ratings have been assigned to all debt securities recently filed under a $1 billion shelf registration. All ratings remain under review with negative implications, meaning another downgrade has not been ruled out.AM Best said its downgrades on Montpelier ratings were attributable to deterioration in Montpelier's risk-adjusted capitalization following losses incurred from Hurricanes Katrina and Rita, which accounted for a substantial level (more than 40 percent) of the company's shareholders' equity at June 30, 2005.

"Although Montpelier's $600 million public equity offering that immediately followed Hurricane Katrina was successful, A.M. Best 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. Accordingly, Montpelier's A- (Excellent) rating will remain under review with negative implications pending the successful completion of an action plan," AM Best said.

Following extensive discussions with the company's management, the ratings firm said it was satisfied a prudent underwriting strategy is now being implemented to better manage the potential accumulation of losses from a single large catastrophic event.