A.M. Best Downgrades Ratings of Montpelier Reinsurance Ltd. and Montpelier Re Holdings Ltd.

OLDWICK, N.J. -- A.M. Best Co. has downgraded the financial strength rating to A- (Excellent) from A (Excellent) and the issuer credit rating (ICR) to "a-" from "a" for Montpelier Reinsurance Ltd. (Montpelier) (Hamilton, Bermuda). Concurrently, A.M. Best has downgraded the ICR to "bbb-" from "bbb" of Montpelier Re Holdings Ltd. (Montpelier Re) (NYSE:MRH) (Hamilton, Bermuda) and has downgraded all existing debt ratings. Ratings have been assigned to all debt securities recently filed under a $1 billion shelf registration. All ratings remain under review with negative implications.

The downgrades are attributable to deterioration in Montpelier's risk-adjusted capitalization following losses incurred from Hurricanes Katrina and Rita, which accounted for a substantial level of the company's shareholders' equity at June 30, 2005. Although Montpelier's $600 million public equity offering that immediately followed Hurricane Katrina was successful, A.M. Best believes that a reduction in the company's risk profile and/or additional capital over the near term will be necessary to stabilize the current ratings. Accordingly, Montpelier's A- (Excellent) rating will remain under review with negative implications pending the successful completion of an action plan in accordance with A.M. Best's expectations.

As a global property catastrophe reinsurer, Montpelier is subject to high severity losses due to catastrophic events occurring around the world. However, the accumulation of losses resulting from Hurricane Katrina was outside of A.M. Best's expectation. Following extensive discussions with the company's management, A.M. Best's opinion is that a prudent underwriting strategy is now being implemented to better manage the potential accumulation of losses from a single large catastrophic event.

As a result of these catastrophic events in 2005, property catastrophe pricing is expected to increase, which should benefit returns, barring any other catastrophic events. A.M. Best expects Montpelier to manage its risk-adjusted capital and financial leverage ratios within acceptable ranges to support its new financial strength and debt ratings.

The following debt rating has been downgraded:

    Montpelier Re Holdings Ltd.--

            --  to "bbb-" from "bbb" on $250 million 6.125% senior
                unsecured notes, due 2013

    The following debt ratings have been assigned under the $1.0
    billion shelf registration:

    Montpelier Re Holdings Ltd.--

            --  "bbb-" on senior unsecured

            --  "bb+" on subordinated

            --  "bb" on preferred stock

    MRH Capital Trust I (guaranteed by Montpelier Re Holdings Ltd.)--

            --  "bb" on preferred securities

    MRH Capital Trust II (guaranteed by Montpelier Re Holdings Ltd.)--

            --  "bb" on preferred securities

For Best's Debt Ratings, all other Best's Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.