We are downgrading Montpelier Re Holdings Ltd. (MRH) to Underperform from Neutral on the back of a loss reported in the third quarter. Montpelier’s operating loss of 40 cents came in much wider than the Zacks Consensus Estimate, led by catastrophe losses.
Montpelier has substantial exposure to losses resulting from natural and man-made disasters and other catastrophic events. The third quarter suffered largely due to catastrophe (CAT) losses, resulting from Hurricane Irene and the Texas wildfires ($30 million), U.S. regional aggregate covers ($20 million) and July Danish floods ($10 million).
The magnitude of loss increased from the second quarter, which reported a cat loss of $39 million. The company incurred an underwriting loss of $33.5 million in third-quarter 2011, comparing unfavorably with the year-ago quarter's profit of $47.9 million. Combined ratio deteriorated substantially to 121.5% in the reported quarter from 69.4% in the year-ago quarter.
Montpelier has been experiencing a weakness in its commercial property book. Looking forward, Montpelier expects lower net premium written attributable to the lower percentage of property CAT premium renewing in the forthcoming quarters and timing differences associated with ceded reinsurance premiums.
Montpelier’s efforts to expand its underwriting platform beyond Bermuda are encouraging. However, the new lines of businesses that the company is developing through these platforms will change the composition of its overall business book.
On the flip side, the company is vending off Montpelier U.S. Insurance Company (MUSIC) to focus more on its short tail reinsurance underwriting. Also, the divestiture will also help the company deploy capital for its Bermuda and London platforms.
Counting on the other positives, Montpelier continues to benefit from its transition from a Bermuda “monoline” property catastrophe reinsurer to a diversified global reinsurer, scores strongly with the rating agencies and also remains focused to return value to its shareholders.
The Zacks Consensus Estimate for fourth quarter 2011 is 68 cents per share. For full years 2011 and 2012, the Zacks Consensus Estimates are a loss of $1.52 and earnings of $2.22, respectively.
The quantitative Zacks #4 Rank (short-term Sell rating) for the company indicates downward 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), Flagstone Reinsurance Holdings SA (FSR) and Validus Holdings Ltd. (VR).
FLAGSTONE REINS (FSR): Free Stock Analysis Report
MONTPELIER RE (MRH): Free Stock Analysis Report
RENAISSANCERE (RNR): Free Stock Analysis Report
VALIDUS HOLDING (VR): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment