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NEW YORK--([ BUSINESS WIRE ])--Fitch Ratings has affirmed the 'A-' Insurer Financial Strength (IFS) rating of Validus Reinsurance, Ltd. (Validus Re), the principal reinsurance operating subsidiary of Validus Holdings, Ltd. (Validus). Fitch has also affirmed Validus' 'BBB+' Issuer Default Rating (IDR), 'BBB' senior unsecured notes rating, and 'BB+' rated junior subordinated debt instruments (see full rating list below). The Rating Outlook remains Positive.

The rating actions follow Validus' announcement that it will acquire Flagstone Reinsurance Holdings, S.A. (Flagstone) in a transaction valued at $623 million, including $148 million in cash and 0.1935x Validus voting common shares per Flagstone share. The transaction is expected to close late in the fourth quarter of 2012.

The affirmation reflects Fitch's belief that if the transaction is completed at the terms described above, its effects should have a negligible impact on Validus' historically strong operating performance or the high quality of its balance sheet.

Financial leverage could increase modestly immediately following the transaction but should remain well below median guidelines for Validus' current rating category.

While integration risks are present in any acquisition, Fitch's concerns in this regard are partially mitigated by Validus' track record of successfully integrating acquisitions, as well as Flagstone's relatively small size and manageable infrastructure.

Fitch expects to review Validus during the fourth quarter of 2012 as part of its regular review process and will reassess the company's ratings at that time, at which point Fitch expects that it will either affirm Validus' ratings or upgrade them by one notch.

Key ratings triggers that could lead to an upgrade include Validus' ability to demonstrate continued solid performance, including underwriting results and overall profitability that outperform comparably rated peers.

This assumes that the company also maintains solid capitalization with net written premium-to-equity and asset leverage ratios at or near recent levels of 0.5x and 2.3x, respectively, while loss reserve development remains neutral to favorable.

Key ratings triggers that could lead to a Negative Rating Outlook or a ratings downgrade include a significant deterioration in the company's underwriting performance relative to peers. Likewise, a weakening of Validus' capitalization metrics or a material increase in underwriting leverage (measured by traditional premiums written to equity ratios) to levels in excess of 1.0x or asset leverage to levels in excess of 3.0x could result in an Outlook revision or ratings downgrade.

In addition, a material increase in Validus' debt-to-capital ratio to levels in excess of 25% or decrease in run rate interest coverage ratios to the low single digits for a period of consecutive years could cause Fitch to downgrade the company's debt ratings.

Fitch affirms the following ratings:

Validus Holdings, Ltd.

--IDR at 'BBB+'; Outlook Positive;

--8.875% senior unsecured notes due 2040 at 'BBB';

--9.07% junior subordinated deferrable debentures due June 2036 at 'BB+';

--8.48% junior subordinated deferrable debentures due June 2037 at'BB+'.

Validus Reinsurance, Ltd.

--IFS at 'A-'; Outlook Positive.

Additional information is available at '[ www.fitchratings.com ]'. The ratings above were unsolicited and have been provided by Fitch as a service to investors. The issuer did not participate in the rating process other than through the medium of its public disclosure.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (Sept. 22, 2011).

Applicable Criteria and Related Research:

Insurance Rating Methodology

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=651018 ]

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