Montpelier Re Holdings Ltd. (MRH)

MRH 
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Montpelier Re Holdings (MRH)

Q3 2008 Earnings Call

October 24, 2008 8:00 am ET

Executives

Jonathan Kim - General Counsel and Secretary

Chris Harris - President and Chief Executive Officer

David Sinnott - Chief Underwriting Officer

Mike Paquette - Chief Financial Officer

Analysts

Matthew Heimermann - JP Morgan Securities

Rohan Pai - Banc of America

Amanda Lynam - Goldman Sachs

Presentation

Operator

Greetings ladies and gentlemen. Welcome to the Montpelier Re Holdings Limited third quarter 2008 conference call. (Operator Instructions) it now my pleasure to introduce your host, Mr. Jonathan Kim, General Counsel and Secretary of Montpelier Re. You may begin.

Jonathan Kim

Thank you. Welcome to Montpelier Re's third quarter 2008 earnings conference call. A press release setting out our results, together with a detailed financial supplement have been posted to the company's website at www.montpelierre.bm. This call is being webcast live and will be available for replay until November 24, 2008. Our speakers today are our President and CEO, Chris Harris; David Sinnott, our Chief Underwriting Officer; and Mike Paquette, our Chef Financial Officer. Chris and dividend will give their commentary on the quarter, and then Mike will present an overview of financial results. We will then be pleased to take your questions.

During our discussion this morning, we may make forwardlooking statements. Any such statements are based on the company's current plans, estimates, and expectations. Actual results could differ materially from those projected in any forwardlooking statements as a result of certain risk factors disclosed previously and from time to time in Montpelier's filings with the U.S. Securities and Exchange Commission. The company undertakes no obligation to publicly update or revise any forwardlooking statements whether as a result of new information, future events, or otherwise. I would now like to turn the proceedings over the Chris.

Chris Harris

Good morning. One of the advantages of stubbornness is that you never need to change your opinion. We could adopt a stubborn approach, ignore the impact of widespread investment losses, weakening insurance and reinsurance balance sheet, ignore the impact of Ike and Gustav, causing $15 billion plus of insured losses, ignore the impact of trapped collateral and likely reduced reinsurance capacity from the capital markets, and assume the price of risk continues its yeartodate downward slide across virtually all lines. We actually see all of these factors either directly reducing the supply of capital or arguing for higher return hurdles.

Based on discussions with a variety of feeding companies, we also expect to see increased demand for reinsurance, driven by several sources, including weaker capital adequacy positions and shrinking risk tolerances. As a result, we have become more optimistic in our outlook for 2009 since last quarter as we expect to see increased opportunities for all of our underwriting platforms. Within the U.S. operations specifically, we may benefit from potential clients expanding their list of insurance and reinsurance partners in order to lessen concentration risk.

We remain comfortable with our current capital level. However, in our internal assessment, the pendulum has shifted from heavily in favor of share buyback to a more neutral capital management position. We will monitor the upcoming renewal season closely. If underwriting opportunities emerge above our current expectations, we will consider deploying our contingent capital.

A couple of specific comments on this quarter. While it is disappointing to suffer a loss in any quarter, both our underwriting and investment portfolios held up well in challenging times. As regards to the $130 million net financial impact from Ike and Gustav, which is in line with our earlier preannouncement, we expect 90% to 95% of the net impact from Ike. The Ike estimate includes a total loss on our $52 million [TWEA] net line. Further, we expect the loss to be concentrated in our property CAT bucket, among personal and small commercial line writers. I will remind listeners that we do not write any offshore treaty exposures.

The quarter benefited from $23 million of prior year reserve releases, twothirds of the release was due to reductions in our estimate for specific prior year CAT events, namely the hurricanes of 2005 and the 2007 European losses.

One last item, last night we announced that we had received approval from Lloyd's for the establishment of our own wholly owned managing agent. Montpelier Underwriting Agencies Limited will assume the management of Montpelier Syndicate 5151 for the 2009 underwriting year of account with effect from January 1, 2009.

Our organic twostage approach to entry into the Lloyd's market has delivered a complete Lloyd's franchise, one which is integrated from inception into the Montpelier group, risk management, and underwriting philosophy at a fraction of the cost of an outright acquisition. The formation of our own managing agency represents the latest step in a series of strategic initiatives we began in mid2006.

We now have operations in four countries, employing three different insurance licenses. This broader platform should allow us to take greater advantage of the opportunities that we believe will increasingly present themselves. With that, I will turn it over to David.

David Sinnott

Underwriting conditions remain challenging during the quarter, though we managed to renew the majority of our business at acceptable terms and continue to attract new opportunities to our Lloyd's and U.S. platforms. The impact of Hurricanes Ike and Gustav, while together a significant financial event, is in line with expectations and underscores the validity of our catastrophe management policy.

For the majority of classes underwritten by Montpelier Re, pricing continued to trend downward in the third quarter, albeit at a reduced rate. For the underwriting year to date for all regions in all segments of our operations, the premium weighted renewal price index for both property catastrophe and property specialty is down 9%. Other specialty has declined 11%. And casualty is down 8%.

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