Fitch Ratings yesterday affirmed the A- insurer financial strength (IFS) rating of Bermuda-based Montpelier Reinsurance Ltd., with a stable outlook.

The ratings agency said the reinsurer's diversification into lines of non-catastrophe business - if it works out successfully over time - could put upward pressure on the rating.

Fitch also noted Montpelier's success in increasing its shareholders' equity through a challenging period, as well as its conservative investment portfolio.

"The affirmations reflect Montpelier's recent strong operating performance and capital generation, as well as Fitch's belief that Montpelier's risk management capabilities will enable the company to maintain its solid and liquid balance sheet during periods of heightened catastrophe and capital market volatility," Fitch said in its ratings commentary.

"Fitch notes that the company's September 30, 2009 GAAP-basis common shareholders' equity of $1.7 billion, was four percent higher than its year-end 2007 level and was at its highest point since mid-2005.

"Given the very difficult capital market conditions and significant catastrophe-related losses experienced in 2008, Fitch views this result as favourable."

Fitch said many Montpelier and many Bermuda market peers benefited from dramatic improvement in the capital markets and the absence of hurricane-related losses through the first nine months of 2009.

Montpelier used "sound risk management processes to manage its exposure to potential catastrophe-related losses by geographic zone and relative to its capital base", Fitch added.

Fitch noted that the company increased its writings in non-catastrophe business lines by expanding into the Lloyd's and US excess and surplus lines market.

"If these diversifying business lines continue to grow as a percentage of Montpelier's overall underwriting portfolio and become steady, meaningful contributors to Montpelier's earnings, they could generate upward pressure on the company's rating outlook or ratings," Fitch said.

Fitch views Montpelier's investment portfolio, dominated by bonds issued by US government and government entities, agency mortgage-backed securities and highly rated corporate bonds, as high-quality.