Bermuda-based Alterra Capital Holdings Ltd.'s operating subsidiaries' financial strength rating (FSR) has been upgraded to A (excellent) from A- (excellent) and its issuer credit ratings (ICR) to "a" from "a-" by AM Best Co., following the recent merger between Max Capital Group Ltd. and Harbor Point Ltd.

These companies were former subsidiaries of Max Capital Group.

Alterra declined 23 cents on its first day of trading yesterday, closing the day at $22.75.

Additionally, Best has upgraded Alterra's ICR to "bbb" from "bbb-", as well as all of its debt ratings. All the ratings have been removed from under review with positive implications and assigned a stable outlook.

The ratings agency also has affirmed the FSR of A (excellent) and ICRs of "a" for the subsidiaries of the former Harbor Point. The outlook for these ratings is stable.

Best said that the rating actions reflected the prospective benefits to Alterra in terms of broadening its management depth, the addition of strong underwriting teams, enhanced diversification, increased capacity and greater scale of operations.

The risk-adjusted capital of the combined organisation is strong after considering the proposed post closing extraordinary dividend of approximately $300 million.

Moreover, the organisational structure of the board of directors, the executive management team and key committees provides comfort that Alterra will be well-positioned to execute its strategy.

The ratings agency added that while the Alterra merger appeared to have been structured in an optimal manner, there was execution risk inherent in such a transaction.

Also, partially offsetting the positive rating factors, it said, were current headwinds in the casualty market and the threat of looming inflation, which could take its toll on casualty writers, including Alterra, in the intermediate and longer term.