Montpelier Re Holdings Ltd. (MRH) reported third quarter 2011 operating loss of 40 cents per share, wider than the Zacks Consensus of a loss of 23 cents. Results compare unfavorably with earnings of 86 cents in the year ago quarter. Operating loss was $24.9 million, plummeting from a profit of $60.7 million in third quarter 2010.
The quarter suffered largely due to catastrophe losses, resulting from Hurricane Irene and the Texas wildfires, U.S. regional aggregate covers and July Danish floods. However, favorable prior year loss reserve movements were a partial offset.
Including net realized investment gains of $13.3 million, net unrealized investment losses of $44.6 million, net losses from investment-related derivative instruments of $5.7 million, net foreign exchange losses of $4.1 million and net losses from foreign exchange-related derivative instruments of $0.2 million, the company reported a net loss of $66.2 million or $1.07 per share, compared with a profit of $90.0 million or $1.27 per share.
Operational Update
Net insurance and reinsurance premiums earned decreased 0.3% year over year to $155.9 million in the quarter under review.
Underwriting loss in third quarter 2011 totaled $33.5 million, comparing unfavorably with the year ago quarter's profit of $47.9 million.
Net investment income in the quarter came in at $17.0 million, 8% lower than the year-ago quarter.
The loss ratio in the third quarter was 89% compared with 33.3% in the year-ago quarter. Results include $60 million of catastrophe losses partially offset by $18 million of favorable prior year loss reserve movements.
Combined ratio in the quarter was 121.5%, a substantial deterioration from 69.4% in the year-ago quarter.
Financial Update
Montpelier ended the quarter with cash and cash equivalents of $423.9 million, up 86% from 2010-end.
At the quarter end, the debt level slightly increased to $327.8 million from 2010-end level of $327.7 million.
Book value per share as of September 30, 2011 was $22.26, 4.3% lower than $23.36 as of June 30, 2011.
Our Take
Montpelier is divesting Montpelier U.S. Insurance Company to focus more on its short tail reinsurance underwriting. The divestiture will also help the company deploy capital for its Bermuda and London platforms.
However, the company’s results continue to be weighed down by catastrophe losses.
We maintain our Neutral recommendation on Montpelier. The quantitative Zacks #3 Rank (short-term Strong Hold 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. The company competes with RenaissanceRe Holdings Ltd. (RNR) which is scheduled to release its third quarter earnings on November 2, before the bell.
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