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

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Summary:
Montpelier's fourth-quarter earnings per share outperformed the Zacks Consensus Estimate while also rebounding from the prior-year quarter net operating loss. The quarter experienced solid underwriting results. Absence of any catastrophe losses and favorable prior-year reserve development during the quarter led to significant improvement in the combined ratio and loss ratio. However, net investment income and premiums written declined year over year. Montpelier Re continued its trend of outperforming expectations despite a competitive market, riding on the strength of underwriting performances. Montpelier remains well positioned due to its increased exposure in the property catastrophe lines of business, focus on underwriting operations, augmenting capital flexibility, and strong competitive position. Moreover, the company remains committed to enhancing its shareholder value. It also scores strongly with credit rating agencies. We thus retain our Outperform rating on the stock.

Overview:

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 and it had changed the names of its two reportable segments. These segments are - 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 it 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 MUSIC Sale 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 2013-end, the company held total assets of $3.76 billion, down 1.4% year over year and shareholder equity of $1.89 billion, up 15.8% year over year. Debt balance was $399.2 million, remain flat with the year ago quarter results.

Source: Company

Prior to 2007, Montpelier operated from Bermuda. In 2007, it expanded its underwriting platform to include operations located 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.



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