Montpelier Re Holdings Ltd. (MRH)

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Montpelier Re Holdings Ltd. (MRH)

Q2 2013 Earnings Call

July 26, 2013 08:00 AM ET

Executives

Christopher Harris - President and CEO

Mike Paquette - CFO

Chris Schaper - President of Montpelier Re Bermuda

Richard Chattock - Chief Underwriting Office of our Lloyd Syndicate

Jason Pratt - CIO

Bill Pollett - Chief Corporate Development, Strategy Officer and Treasurer

Analysts

Ryan Burns - Jenney

Amit Kumar - Macquarie

Ron Bobman - Capital Returns

Presentation

Operator

Greetings ladies and gentlemen and welcome to the Montpelier Group’s Second 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

Thank you. Good morning and welcome to Montpelier Re’s second 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 August 8.

Our speakers this morning are Christopher Harris, President and CEO; and Mike Paquette, 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, 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 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?

Chris Harris

Good morning ladies and gentlemen. Thank you for joining us. In a quarter marked by several industry catastrophe events and increasingly competitive market conditions, our insurance teams turned in a strong operating performance. We executed well across all the platforms delivering strong profitability with 69% combined ratio.

The quarterly loss ratio of 34% included the benefit of $48 million of prior period reserve related. The loss ratio for the current accident quarter was 68%. There were three notable items impacting the run rate loss ratio this quarter. First, approximately $12 million in adjustments negatively impacted the quarterly earned premium. These were a combination of loss sensitive premium adjustments and updated estimates for certain proportional contracts.

Second, we bought $26 million in net losses for current quarter catastrophe event inclusive of the Oklahoma tornados and European and Canadian floods.

And third, we booked a $13 million provision for larger individual risk losses.

The prior year releases, $48 million were distributed across all major reporting classes. Within that total approximately $14 million of releases were generally offset by corresponding movement elsewhere on the income statement relating to negative premium adjustments or foreign exchange movement. Of the remaining release the largest contributor was a reduction of $21 million related to natural catastrophe events. The reduction was spread across a number of events, but approximately half related to Sandy and the Tohoku earthquake.

Additionally we benefitted by $6 million from the settlement of several outstanding claims during the quarter for amounts less than their carried reserves. The total IBNR to reserve ratio ended the quarter at 63%, up slightly from 60% last quarter.

Overall we experienced a competitive rating environment in the second quarter with a 5% decrease in our internal renewal price index. However we did see a diversion in rate level trends among various lines of business. Property catastrophe reinsurance market conditions became increasingly competitive over the course of the second quarter. Our renewal price index showed overall decreases of 12% for US business and 3% for international business for the April to July period.

Casualty specialty RPIs also decreased by 2% for the same period. However, within the property specialty and individual risk segments RPIs were plus 5% and plus 2% respectively as we continued to see the benefit of stronger original rates in these lines. Excluding the impact of reinstatement premiums, net written premium including all managed premiums decreased 4% versus the prior year quarter.

As shown on page six of the supplement US hurricane remains our largest PML as of June 1st at 396 million which is close to unchanged versus January 1. Year-to-date, we have spent approximately 121 million on share repurchases and we retained flexibility to match our capital base to the best market opportunities. Solid underwriting results have contributed to a good start to 2013 for month failure with an operating ROE of 7.8% year-to-date. Book value per share plus dividend has increased 4.3% year-to-date lagging operating ROE due to the impact of unrealized investment losses this quarter.

While the market conditions are challenging, we remain well positioned to continue executing our focused, underwriting and capital management strategy throughout the remainder of 2013. And with that I will turn it over to Mike to provide more details on the financials.

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