We are upgrading Montpelier Re Holdings Ltd. (MRH) to Neutral from Underperform as 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.
MUSIC will be divested to Selective Insurance Group Inc. (SIGI) for a total consideration of $55 million.
Counting on the other positives, Montpelier continues to benefit from its transition from a Bermuda “monoline” property catastrophe reinsurer to a diversified global reinsurer.
The company scores strongly with the rating agencies. Montpelier also remains focused on returning value to its shareholders through share buybacks. In the second quarter of 2011, Montpelier spent $15 million to buy back shares. The company also pays dividend regularly.
On the flip side, Montpelier suffered largely due to catastrophe losses in the second quarter, resulting from tornado activity in the United States in April and May, though the magnitude was lower at $39 million than the first quarter loss. Also lower investment income and higher operating expenses added to the woes.
Montpelier is experiencing weakness in its commercial property book. Looking forward, Montpelier expects continued 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.
The quantitative Zacks #3 Rank (short-term 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. It 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
SELECT INS GRP (SIGI): Free Stock Analysis Report
VALIDUS HOLDING (VR): Free Stock Analysis Report
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