Montpelier Re Holdings Ltd. (MRH) reported first quarter 2011 operating loss of $1.90 per share, lower than the Zacks Consensus Estimate loss of $2.08. The loss, however, was wider than the loss of 31 cents incurred in the prior-year period. Operating loss was $119 million, compared with a loss of $23.1 million in the year-ago quarter.
The quarter suffered largely due to huge catastrophe losses coupled with significant increase in expense as well as lower investment income.
The company incurred catastrophe losses, net of reinsurance and reinstatement premiums of $200 million in the quarter, resulting from the Tohoku earthquake in Japan ($130 million), New Zealand earthquake ($65 million) and Australian Floods ($5 million).
Including net realized investment gains of $5.6 million, net unrealized investment gains of $10.2 million and net foreign exchange losses of $1.6 million, the company reported a net loss of $104.3 million or $1.66 per share, compared with a net income of $9.9 million or 7 cents per share.
Operational Update
Net insurance and reinsurance premiums earned increased 5% year over year to $166.1 million in the quarter under review.
Underwriting loss in first quarter 2011 totaled $131.0 million, wider from the year ago quarter loss of $37.2 million.
Net investment income in the quarter came in at $18 million, 5% lower than the year-ago quarter.
The loss ratio in the fourth quarter was 150% compared with 91% in the year-ago quarter. Results include $200 million of catastrophe losses partially offset by $34 million of favorable prior year loss reserve movements.
Combined ratio in the quarter was 178.8%, a substantial deterioration from 123.5% in the year-ago quarter.
Financial Update
Montpelier ended the quarter with cash and cash equivalents of $323.1 million, up 39% from 2010-end.
At the quarter end, the debt level slightly remained flat with 2010-end level of $328 million.
Book value per share as of March 31, 2011 was $23.10, 5.7% lower than $24.61 as of December 31, 2010.
Share Repurchase
During the first quarter of 2011, Montpelier bought back 2.35 million shares at an average price of $20.06.
Peer Comparison
RenaissanceRe Holdings Ltd. (RNR) which competes with Montpelier, reported its first-quarter loss from continuing operations of $4.59 per share, lower than the Zacks Consensus Estimate of a loss of $4.94.
The negative impact in the quarter was attributable to the Australian Flooding in January, the New Zealand Earthquake in February and the Tohoku Earthquake in March. Besides the number of significant catastrophic events, Renaissance’s expenses increased largely coupled with the decrease in net investment income.
Our Take
We expect the current pricing environment in the primary insurance market and the stressed economy to restrict top-line growth. Additionally, there exists execution risk with the newer platforms and we expect investment yields to remain under pressure in the near term.
We maintain our Underperform recommendation on Montpelier. The quantitative Zacks #4 Rank (short-term Sell rating) for the company indicates downward pressure on the stock over the near term.
MONTPELIER RE (MRH): Free Stock Analysis Report
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