Montpelier Re Holdings Ltd. (MRH)

MRH 
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Montpelier Re Holdings Ltd. (MRH)

Q1 2013 Earnings Conference Call

April 25, 2013 09:00 ET

Executives

Jonathan Kim - General Counsel and Secretary

Christopher Harris - President and Chief Executive Officer

Mike Paquette - Chief Financial Officer

Chris Schaper - President, Montpelier Re Bermuda

Analysts

Amit Kumar - Macquarie

Ryan Byrnes - Langen McAlenney

Dan Farrell - Sterne Agee

Sarah Dewitt - Barclays

Vinay Misquith - Evercore

Presentation

Operator

Greetings ladies and gentlemen and welcome to the Montpelier Group’s first quarter 2013 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 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 - General Counsel and Secretary

Thank you. Good morning and welcome to Montpelier Re’s first quarter 2013 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 through May 9th.

Our speakers this morning are Christopher Harris, our President and CEO; and Mike Paquette, our Chief Financial Officer. Also with us are Chris Schaper, President of Montpelier Re Bermuda; Richard Chattock, Chief Underwriting Office of our Lloyd Syndicate; Jason Pratt, our Chief Investment Officer; and Bill Pollett, our Chief Corporate Development and Strategy Officer and Treasurer.

Chris Harris will give his commentary on the quarter 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 the most 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 - President and Chief Executive Officer

Good morning ladies and gentlemen. Thank you for joining us. Montpelier kicked off 2013 with a very successful first quarter. Our focus remains on growing book value per share plus dividend and we achieved solid growth of 5.6% based on this measure with well balanced contributions from underwriting investments and capital management. Our underwriting teams executed very well with both our Bermuda and Lloyd’s platforms delivering strong profitability and an overall combined ratio of 62%.

For the first quarter overall net written premiums including all managed premiums were up 3%, within the property and individual risk segment we saw a healthy increase in net written premium as we allocated more capacity to marine and large commercial property classes in response to improving market conditions.

Net written premium for property re-insurance increased by 2% well other specialty re-insurance decreased by 7% in the quarter due to reductions within the engineering, aerospace and specialty, casualty lines. There were no large losses in excess of $10 million during the quarter. The current accident quarter net loss ratio was 43% which represents a slight improvement versus Q1 of last year driven primarily by a business shift away from a way from individual risk casualty resulting from the run-off of Montpelier MUSIC operations.

Prior year reserve releases improved the quarterly result by $18 million, the releases were concentrated within the property catastrophe class with net reductions of $17 million largely arising from Sandy and various 2011 catastrophe events. The IBNR to total reserve ratio increased slightly to 60% at quarter end.

Our April 1st, property reinsurance renewals were dominated by Japan and risk adjusted pricing was close to be unchanged for most of these programs. We maintain similar year-over-year exposures in yen but the decrease in U.S dollar terms due to exchange rate movements for that currency pair.

As shown on page six of the financial supplement U.S wins remains our peak zonal PML at the one and 250 year return period. Year-to-date we have spent approximately 52 million on share repurchases and we retain significant flexibility to match our capital base to the best market opportunities. Solid investment performance and excellent underwriting execution contributed to a good start to 2013 for Montpelier as we enter the mid year renewal cycle our focus remains on utilizing a consistent approach to risk selection and providing great service to our business partners.

And with that I will turn it over to Mike to provide more details on the financials.

Mike Paquette - Chief Financial Officer

Thank you, Chris. We ended the quarter with a fully converted book value per common share of $27.49 an increase of 5.6% after taking into account our common dividend. Our operating income for the quarter was $66 million or $1.18 per common share and our net income was $92 million or $1.65 per common share each expressed after preferred share dividends. Net premiums written increased by 3% in the quarter, earned premiums were flat in the quarter but were up 7% when adjusting for the MUSIC premium we assumed last year in accordance with the term of our sale.

We did not incur any significant catastrophe losses during the quarter and we benefited by $18 million of favorable prior year loss reserve movements. The combined ratio for the quarter was 62%. Our acquisition costs are trending down as we expected. The decrease reflects the absence of Ceding commissions associated with the MUSIC premium we assumed in 2012.

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