Montpelier Reinsurance Ltd, the principal re/insurance operating subsidiary of Montpelier Re Holdings Ltd., has been affirmed the insurer financial strength (IFS) rating of 'A-' by Fitch Ratings.

Fitch has also affirmed Montpelier Re Holdings Ltd. an issuer default rating (IDR) of 'BBB+'; $250,000,000 6.125 percent senior notes due on August 15, 2013 of 'BBB'; and Montpelier Capital Trust III $100,000,000 8.55 percent trust preferred securities due on March 30, 2036 at 'BBB-'.

The rating outlook is stable.

Fitch's affirmation reflected its belief that Montpelier's risk management capabilities will enable the company to maintain its strong and liquid balance sheet during periods of heightened capital market volatility, such as those currently being experienced. The ratings agency viewed the company's 18 percent reduction in reported GAAP-basis common shareholders' equity in 2008 as a material but reasonable decline, given the year's very difficult capital market conditions and significant catastrophe-related losses.

Fitch noted that roughly half of the decline in shareholders equity was due to share repurchases and common dividends paid in 2008.

The ratings agency viewed Montpelier's investment portfolio as high-quality. The company's portfolio is dominated by agency mortgage-backed securities and highly rated corporate bonds.

At year-end 2008, Montpelier's cash equivalents and fixed income portfolio had a weighted average credit rating of 'AA+', with an average duration of 1.7 years.

Although Montpelier's investments in asset classes represent a comparatively small portion of the company's capital, Fitch said they add to the already significant earnings and capital volatility Montpelier faces from an underwriting perspective due to its focus on writing property/catastrophe reinsurance and contributed meaningfully to Montpelier's capital decline in 2008.

Despite these exposures, Fitch believes that the company's investment portfolio and capitalisation are supportive of the company's current ratings and remain so under stress test scenarios where Fitch assumes credit related losses on the company's fixed income portfolio and asset valuation losses on the company's equity portfolio.