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Montpelier Re Holdings Ltd. (MRH)

Q2 2008 Earnings Call

July 23, 2008 8:00 am ET


Jonathan Kim - General Counsel and Secretary

Chris Harris - President and CEO

David Sinnott - Chief Underwriting Officer

Mike Paquette - CFO


Matthew Heimermann - JPMorgan Securities

Rohan Pai - Banc of America Securities

Bill Wilt - Morgan Stanley

Chuck Hamilton - FTN Midwest

Ron Bobman - Capital Returns



Greetings, ladies and gentlemen, and welcome to the Montpelier Re Holdings Ltd. second quarter 2008 conference call. (Operator Instructions).

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 sir.

Jonathan Kim

Thank you. Good morning and welcome to the Montpelier Re second quarter 2008 earnings conference call. A press release setting our results together with a detailed financial supplement has been posted to the company's website at This call is being webcast live and will be available for replay until August 23, 2008.

Our speakers today are Chris Harris, President and CEO, David Sinnott, Chief Underwriting Officer and Mike Paquette, Chief Financial Officer. Chris and David will give their commentary on the quarter and then Mike will present an overview of the financial results. We will then be pleased to take your questions.

During our discussion 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 and Montpelier's filings with the US 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. Chris?

Chris Harris

Good morning, ladies and gentlemen. A solid quarter for the Montpelier Re group Operating income of $63 million, fully converted book value per share growth of 3.1% and a combined ratio of 58%. Both underwriting and investment teams performed well in tough market conditions.

David and Mike will provide more detailed commentary on the underwriting environment and the financials. I will make few comments about the loss activity for the quarter.

While the quarter was an active one in terms of both PCS catastrophe losses and commercial property individual risk losses, we saw much less activity in our portfolio than in the prior quarter. For the current quarter, we booked $15 million of net loss in respect to the various US weather events, which includes an IBNR provision for some multi-event protection as well as our crop book. While we continue to see increased claims frequency in the property individual risk area as compared to prior years, we avoided most of the larger market losses this quarter. Our results do include $6 million of net loss from one risk claim.

Reductions in prior year losses provided a $28 million benefit to the quarterly results. $8 million of the benefit resulted from subrogation on a previously paid claim. The remaining $20 million of reserve release was driven by continued favorable development across the storms of '04, '05, and '07, and a case reserve reduction on a single risk loss. Across our entire portfolio, the IBNR its total reserve ratio increased to 55% with a casualty component at 74%.

Turning to our new operation: July 1st marked the one-year anniversary of our launch of Syndicate 5151. Although we still have a lot of work to do, we are pleased with our progress in establishing both the London and US operation. Notably, the London operation turned an underwriting profit for the first time this quarter and in total, the new platforms account for 16% of year-to-date written premium. Key hires, infrastructure and regulatory approvals are in place, and the focus is squarely on finding profitable business.

Our expense ratio this quarter reflects the impact of all of the investments in our new operation. There is a cost to attract talented people, but we consider it money well spent. In regards to fixed G&A expenses, we estimate our expense ratio is nearing an inflection point and premium for the new operation should begin to earn at a quicker pace.

Lastly, our peak PML are down slightly as compared to the prior US wind season. We remain comfortable with our capital position. At current valuation and at the right time, we believe stock buyback remain a compelling option against, which we will measure other opportunities.

With that I will turn it over to David.

David Sinnott

Thank you, Chris. The general patterns of price erosion observed in the first quarter of this year continued into the second quarter, for the underwriting year-to-date for all regions and all segments of our operations. The property catastrophe renewal price index has declined 9%. Property specialty is off 11%, other specialty is down by 12% and casualty is off 6%.

The RPI for property specialty masks some discrepancy between subclasses, whereas property risk excel and property pro-rata have declined by 7% and 10% respectively, property direct and facultative is down 15%.

Despite steady price declines in all lines underwritten by Montpelier Group, we are beginning to see some evidence of a slowdown in the rate of deterioration in certain segments. While it is premature to characterize this trend as a market hardening, rate stabilization may be beginning to emerge.

In our direct and facultative property line, the mining sector has experienced significant increases following its recent run losses. The impact of which is also starting to be felt in other heavy industrial classes such as steel and energy.

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