We are upgrading our recommendation on Montpelier Re Holdings (MRH) to Neutral as it continues to benefit from its transition from a Bermuda “monoline” property catastrophe reinsurer to a diversified global reinsurer, positive ratings from the credit rating agency as well as share buybacks.
Montpelier has expanded its underwriting reach beyond Bermuda. It has transformed from a Bermuda “monoline” property catastrophe reinsurer to a global diversified catastrophe specialist and has expanded its operations in the US and the UK.
Though investments in newer operating platforms will undoubtedly impact financial results over the near term by incurring up-front costs, these new operating platforms have already begun to be accretive to overall returns.
Montpelier scores high with the rating agencies. A.M. Best Co. reiterated the issuer credit ratings (ICR) of “bbb-” and all existing debt ratings of Montpelier. The rating agency upgraded the outlook to positive from stable.
To return value to its shareholders, the company continuously buys back shares. During the first quarter of 2011, Montpelier bought back 2.35 million shares. In 2010, Montpelier bought back 16 million shares as well as hiked its dividend by 11%.
On the flip side, Montpelier has substantial exposure to losses resulting from natural and man-made disasters and other catastrophic events. First quarter suffered 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).
Montpelier Re Holdings reported an operating loss, lower than the Zacks Consensus Estimate loss but wider than the year-ago loss. The quarter suffered largely owing to huge catastrophe losses coupled with a significant increase in expenses as well as lower investment income.
The Zacks Consensus Estimates for second-quarter 2011 is 73 cents per share. For full years 2011 and 2012, the Zacks Consensus Estimates are, respectively, loss of 4 cents and earnings of $2.38 per share.
The quantitative Zacks #3 Rank (short-term Neutral rating) for the company indicates no clear directional pressure on the stock over the near term.
Headquartered in Pembroke, Bermuda, Montpelier, through its subsidiaries in the U.S., the U.K. and Switzerland, provides customized and innovative reinsurance and insurance solutions to the global market. It competes with RenaissanceRe Holdings Ltd. (RNR).
MONTPELIER RE (MRH): Free Stock Analysis Report
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