Montpelier Re Holdings Ltd. (MRH)

MRH 
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Montpelier Re Holdings Ltd. (MRH)

Q4 2012 Earnings Call

February 8, 2013 8:00 am ET

Executives

Jonathan Kim – Senior Vice President, General Counsel and Secretary

Mike Paquette – Executive Vice President and Chief Financial Officer

Christopher Harris – President and Chief Executive Officer

Christopher T. Schaper – President-Montpelier Reinsurance Limited

Analysts

Amit Kumar – Macquarie

Ian Gutterman – Adage Capital

Presentation

Operator

Greeting ladies and gentlemen, and welcome to the Montpelier Group's Fourth Quarter and Full Year 2012 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator instructions)

As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Mr. Jonathan Kim, General Counsel and Secretary of Montpelier Re. Thank you Mr. Kim, you may begin.

Jonathan Kim

Thank you. Good morning and welcome to Montpelier Re’s fourth quarter and full-year 2012 earnings conference call and webcast. A press release setting out our results including 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 for one month. Our speakers this morning are Christopher Harris, our President and CEO, and Michael Paquette, our Chief Financial Officer.

Also with us are Chris Schaper, President of Montpelier Re, Bermuda; Jason Pratt, our Chief Investment Officer; and Bill Pollett, our Chief Corporate Development and Strategy Officer and Treasurer. Chris will give his commentary on the quarter and year-end, and then Mike will present an overview of our financial results. We will then be pleased to take your questions.

Please note that during our discussions this morning, we may make forward-looking 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 forward-looking 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 forward-looking statements whether as a result of new information, future events, or otherwise.

I would now like to turn the proceedings over to Chris Harris. Chris?

Christopher Harris

Good morning, ladies and gentlemen. Thank you for joining us. 2012 was a highly successful year for Montpelier. Our focus remains on growing book value per share plus dividends, and we achieved solid growth of 17% based on this measure for the full year, despite the effect of windstorm Sandy.

A balanced contribution from underwriting, investments and capital management all contributed to our success during the year. Both our Bermuda and Lloyd’s underwriting platforms delivered strong profitability for the year with combined ratios of 66% and 89% respectively. Adjusted for reinstatements and the sale of our former US operating platform, we grew net written premiums by 10% for the year, while continuing to strengthen our relationships with key business partners.

Our investment portfolio performed very well with a total return of 5.2% in a difficult yield environment. On the capital management front, we repurchased 121 million of our common shares, which represented approximately 80% of operating earnings for the year. And with the completion of our debt refinancing in October of last year, we enter 2013 with increased capital flexibility and a lower average cost of capital.

We are particularly pleased that during the fourth quarter we continued to strengthen our capital partnership businesses, with the successful launch of Blue Capital, and renewals of existing private deals. Total partnership capital now exceeds 200 million for the group, enabling us to broaden our product mix for preferred clients and to better leverage our underwriting and risk management expertise.

Sandy was the most notable loss event of the quarter, for which we booked a 94 million impact, net of reinsurance and reinstatement premiums, consistent with our pre-announcement from early December. As a leading property catastrophe underwriter, we expect to incur losses from significant events such as Sandy, however, our balanced global portfolio enabled us to support our clients and to produce a solid profit for the full year.

In particular, Syndicate 5151continued to perform well producing a profitable 95% quarterly combined ratio. Outside of Sandy, fourth quarter losses were in line or better than expectation. Within the cross lines, run rate losses for the current quarter benefited by $5 million due to an improvement in our estimated full-year results.

Prior year reserve releases improved the full year result by $87 million. The releases were spread across major lines, but the largest contributor was a reduction of approximately 50 million for the various 2011 natural catastrophe events. Our underwriting teams executed well during the important January renewal season, although we saw market conditions become more competitive as we approached January 1.

Excluding the impact of reinstatements, we expect overall net written premiums to increase 1% to 5% for the first quarter of 2013 versus 2012. Within our property treaty lines we saw steady demand and targeted growth in our international catastrophe portfolio, most notably on selected European wind exposures, as well as with regional clients within the US. So we reduced our retrocessional exposures.

Within other specialty and individual risk lines, we expect reduced net premium writings for the first quarter. While we saw a favorable rating environment for marine, that growth was more than offset by reductions in our aerospace, engineering and specialty casualty exposures in response to weakening rate adequacy in those lines.

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