We downgrade our recommendation on Montpelier to Neutral from
Outperform due to a dismal second quarter results. Bottom line in
the quarter missed the Zacks Consensus Estimate and was lower than
the year-ago quarter earnings due to decline in the underwriting
income that also led to deterioration in combined ratio.. Net
investment income also continued to decline. However, the quarter
witnessed solid contribution from Lloyd's and Collateralized Re
segments as well as the benefit of prior-period development.
Montpelier remains well positioned due to its increased exposure in
the property catastrophe lines of business, augmenting capital
flexibility, and strong competitive position. Moreover, the company
remains committed to enhancing its shareholder value. It
continuously engages in share buybacks. It also scores strongly
with credit rating agencies.
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
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
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 Jun 30, 2014, the company held total assets of $4.28
billion, up 14% from 2013 end-level and shareholder equity of $1.67
billion, up 1.6% from 2013 end-level. Debt balance was $399.2
million, unchanged from 2013 end-level.
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.
Montpelier Re Holdings Ltd. (MRH): Read the Full
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