Validus Reinsurance and Validus Holdings have been given "negative" outlooks from AM Best after Validus announced its intention to link with the Lloyd's market by acquiring privately-owned Bermuda-based Talbot Holdings.

The negative outlooks relate to the potential impact to Validus if there is a resulting unsuccessful initial public offering.

AM Best has placed a financial strength ratings of A- (Excellent) and issuer credit ratings of "a-" on Validus Reinsurance, but also put it "under review with negative implications."

Concurrently, AM Best has given an issuer credit rating of "bbb-" to Validus Holdings and also put it under review with negative implications.

Validus Holdings intends to acquire Talbot Holdings, which underwrites marine, property, financial institutions, contingency insurance and treaty reinsurance through Lloyd's Syndicate 1183.

The "under review with negative implications" is attributable to the execution risk inherent with financing this transaction, which hinges upon the successful completion of the initial public offering (IPO).

AM Best warned that should the IPO be unsuccessful in raising sufficient funds, it could cause Validus' risk-adjusted capital to fall below AM Best's expectations.

"Furthermore, the current market dynamics of softening property catastrophe rates places additional pressure on Validus to meet its targeted goals," said the rating agency.

"The benefits of the proposed transaction are that Syndicate 1183 would bring a seasoned book of business as well as broader market access to Validus."

The acquisition of Syndicate 1183 would enhance Validus' market profile. The ratings will remain under review pending AM Best's review of the transaction, Validus Holdings' integration plan and its risk-adjusted capital position upon completion of the deal. The transaction is expected to close in either second or third quarter 2007, subject to regulatory approval.