Montpelier Reinsurance Ltd, the principal (re) insurance operating subsidiary of Montpelier Re Holdings Ltd, has been affirmed the insurer financial strength (IFS) rating of ‘A-’ by Fitch Ratings.The rating outlook remains positive.Fitch’s affirmation of Montpelier’s ratings recognises that catastrophe-focused reinsurers will periodically suffer losses of a magnitude sufficient to significantly impact earnings, as occurred during the first nine months of 2011.Despite Montpelier’s year-to-date 2011 operating loss, Fitch said that capital ratios (such as net premium to equity and assets to equity) have consistently remained well within tolerances for the current rating level.Montpelier’s ratings reflect the company’s solid operating performance and internal capital generation over the past several years, said Fitch. They also recognise the company’s significant exposure to earnings and capital volatility derived from its property catastrophe reinsurance products, most recently evidenced by the company’s roughly $283 million of combined catastrophe losses in the first nine months of 2011, including approximately $213 million from the Japanese and New Zealand earthquake events.Fitch said that Montpelier uses sound risk management processes to manage its exposure to potential catastrophe-related losses by geographic zone and relative to its capital base, observing that the company’s share of global catastrophe losses over the last several years has been manageable and consistent with levels that might be expected from a reinsurer of Montpelier’s size and focus. This performance lends confidence in Montpelier’s approach to risk management, said Fitch.The ratings agency said that the positive rating outlook reflected Montpelier’s solid long-term operating performance and the projected benefits of moderate expected pricing improvement in the company’s core catastrophe and other short tail specialty reinsurance lines, while recognising its increasingly less volatile operating profile relative to comparably rated peers.Key rating triggers that could result in a ratings upgrade include a return to strong overall profitability in 2012, driven by good underwriting results that approximate the company’s average combined ratio of approximately 86 percent since 2007.Key rating triggers that could result in a ratings downgrade include weakening of overall risk-adjusted capital strength as measured by the company’s internal stochastic modelling results and traditional operating leverage ratios with underwriting leverage (measured by traditional premiums written to equity ratios) increasing to levels at or above one times.Fitch could also downgrade the company’s ratings if Montpelier were to suffer catastrophe losses that were unfavourably inconsistent with its own internally modelled results or that resulted in earnings and/or capital declines that were significantly worse than comparably rated peers.