AM Best Co. has affirmed the financial strength rating (FSR) of A- (excellent) and the issuer credit rating (ICR) of "a-" of Bermuda-based Montpelier Reinsurance Ltd. and US unit Montpelier US Insurance (MUSIC).

Concurrently, A.M. Best has affirmed the ICR of "bbb-" and all existing debt ratings of Montpelier Re Holdings Ltd. The outlook for all ratings is stable.

The ratings reflect Montpelier's strong risk-adjusted capitalisation, solid operating performance and enhanced enterprise risk management framework.

Additionally, the affirmations consider Montpelier's solid operating performance in 2009 as the company's underwriting results benefited from a lack of significant catastrophic events and an investment portfolio that rebounded from sizable unrealised losses reported in 2008. While 2008 resulted in negative overall return measures due in part to investment losses, the company's risk management and strength of its balance sheet kept the impact of these events to a manageable level.

Furthermore, the improvement in risk management and the initiatives implemented in recent years to reduce the company's risk profile are proving effective as evidenced by the level of losses incurred from recent significant industry events.

Partially offsetting these strengths is Montpelier's susceptibility to low frequency, high severity losses as a global property catastrophe focused reinsurer. The company's premium volume remains concentrated in catastrophe-exposed property lines of business.

While affiliates MUSIC and Lloyd's platform, Syndicate 5151, offer diversification to Montpelier's business mix, both business plans have yet to mature.