Montpelier Re Holdings Ltd. (MRH): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report


Montpelier's earnings per share in the fourth quarter surpassed the Zacks Consensus Estimate but lagged year over year on lower underwriting profit. A still soft interest environment continues to be a drag on investment results. The quarter, nonetheless, witnessed solid contribution from Lloyd's and Collateralized Re segments. Deterioration was also seen in combined ratio. Balance sheet remained far from strengthening as the debt level increased with cash balance declining. However, Montpelier remains well positioned due to its increased exposure in the property catastrophe lines of business, improving capital flexibility and strong competitive position. The company is also committed toward enhancing its shareholder value and continuously engages in share buybacks. It scores strongly with credit rating agencies as well. Hence, we retain our Neutral recommendation on Montpelier.


Montpelier Re Holdings Ltd. (MRH) was formed in 2001 by White Mountains Insurance Group Ltd. and Benfield Holdings Ltd., to take advantage of the enhanced insurance demand, following the Sep 11 terrorist attack. Headquartered in Pembroke, Bermuda, Montpelier, through its subsidiaries in the U.S., U.K. and Switzerland, provides customized and innovative reinsurance and insurance solutions to the global market. The company went public in Oct 2002. Montpelier started with $1.0 billion in capital. White Mountains, a property and casualty insurance and reinsurance company, contributed $200 million, Benfield invested $25 million, other private equity firms kicked in $625 million, and debt issued totaled $150 million. Benfield, which merged with Aon Re Global to form Aon Benfield in Dec 2008, is a premier reinsurance intermediary and capital advisor.

The company operates through four reportable segments, Montpelier Bermuda, Montpelier at Lloyd's, MUSIC Run-Off and Collateralized Reinsurance. Montpelier at Lloyd's was previously known as Montpelier Syndicate 5151 and Collateralized Reinsurance as Blue Capital Segment.

Montpelier Bermuda (accounted for 59.9% of net premium written in 2013) focuses on writing large, short-tail U.S. and international catastrophe treaty reinsurance, on both an excess-of-loss and proportional basis. It specializes in insurance and facultative reinsurance business as well as specialty lines such as aviation, personal accident catastrophe, workers' compensation and political violence/terrorism. Its insurance and reinsurance products include Property Treaty, Specialty Casualty & Other Classes and Property Direct and Facultative. Prior to 2007, Montpelier Bermuda was the company's only operating platform and continues to be its primary operating platform.

Montpelier at Lloyd's (35.6%) underwrites a book of property insurance and reinsurance, engineering, marine hull, cargo and specie and a limited amount of specialty casualty business with a view of capturing business that would not normally find its way to Bermuda underwriters. Syndicate 5151 primarily focuses on non-catastrophe exposures, while remaining within its core competency of underwriting short-tailed accounts.

MUSIC (Run-Off) (0.1%) - On Dec 31, 2011, Montpelier closed the sale of MUSIC to Selective Insurance Group for $54.9 million. However, Montpelier retained, reinsured or otherwise indemnified Selective for all business written by MUSIC, with an effective date on or prior to Dec 31, 2011. Hence, this segment is not considered as "discontinued operation".

This segment used to write insurance risks that do not conform to normal underwriting patterns for standard lines. Generally, MUSIC targets smaller commercial property and casualty risks that are not subject to extreme competitive pressures. Since its inception, MUSIC has ceded 75% of its business to Montpelier Re.

Collateralized Reinsurance (4.4%), launched in 2012, is an asset management platform offering a range of catastrophe reinsurance-linked investment products to institutional and retail investors. Blue Capital consists of the assets and operations of Blue Water Re Ltd. ("Blue Water Re"), Blue Water Master Fund Ltd. (the "Master Fund ), Blue Capital Management Ltd. ("BCML ) and Blue Capital Insurance Managers Ltd. ("BCIML").

As on Sep 30, 2014, the company held total assets of $3.9 billion, down 0.7% year over year, and shareholder equity of $1.89 billion, up 11.5% year over year. Debt balance was $403.2 million, up 1.0% year over year.

Source: Company

Prior to 2007, Montpelier operated from Bermuda. In 2007, it expanded its underwriting platform to include operations in the U.S., U.K. and Switzerland.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Stocks

Referenced Stocks: MRH

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