A.M. Best Co. announced today that it has downgraded thefinancial strength rating for property reinsurer MontpelierReinsurance Ltd. in Bermuda to "A-minus" from "A."

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The Oldwick, N.J.-based rating agency downgraded existing debtratings of the holding company also, stating that all ratingsremain under review with negative implications.

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Downgrades for Montpelier came in spite of the fact that thecompany raised $600 million in a public equity offeringrecently.

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Best said its downgrade actions are attributable todeterioration in Montpelier's risk-adjusted capitalizationfollowing losses incurred from Hurricanes Katrina and Rita, whichaccounted for a substantial level of the company's shareholders'equity on June 30.

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In spite of the equity offering, Best said it believes that areduction in the company's risk profile and/or additional capitalover the near term will be necessary to stabilize the currentratings.

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"As a global property catastrophe reinsurer, Montpelier issubject to high severity losses due to catastrophic eventsoccurring around the world. However, the accumulation of lossesresulting from Hurricane Katrina was outside of A.M. Best'sexpectation," the rating agency said in a statement. Best added,however, that extensive discussions with Montpelier's management,lead the rating firm to believe that a prudent underwritingstrategy is now being implemented to better manage the potentialaccumulation of losses from a single large catastrophic event.

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