Montpelier Re Holdings Ltd. (MRH) reported fourth quarter 2011 operating loss of 27 cents per share, narrower than the Zacks Consensus of a loss of 30 cents. Results compare unfavorably with earnings per share of 81 cents in the year-ago quarter. Operating loss was $16.2 million, tumbling from a profit of $53.9 million in fourth quarter 2010.
The quarter suffered largely due to catastrophe losses, resulting from Thailand floods. However, favorable prior-year loss reserve movements were a partial offset.
Including net realized investment gains of $9.1 million, net unrealized investment gains of $22.4 million, net losses from investment-related derivative instruments of $2.7 million, net foreign exchange losses of $1.4 million, net gains from foreign exchange-related derivative instruments of $2.7 million and net gain from sale of MUSIC, the company reported a net income of $25.0 million or 40 cents per share, compared with $42.2 million or 63 cents per share in the fourth quarter of 2010.
Full year operating loss came in at $2.50 per share, narrower than the Zacks Consensus of a loss of $2.54. Results were far behind the operating profit of $2.30 per share in 2010. Operating loss was $154.4 million, plunging from a profit of $164 million in 2010.
Reported loss in 2011 was $124 or $2.01 per share, compared with $212 million or $2.97 per share in 2010.
Operational Update
Net insurance and reinsurance premiums earned decreased 8.6% year over year to $148.3 million in the quarter under review. Full year net insurance and reinsurance premiums earned inched down 0.4% to $622.7 million over 2010.
Montpelier incurred underwriting loss of $25.1 million in the fourth quarter 2011, comparing unfavorably with the year-ago quarter's profit of $42.1 million. Full year underwriting loss came in at $115.2 million compared with a profit of $112.3 million in 2010.
Net investment income in the quarter came in at $17.1 million, 3.6% lower than the year-ago quarter. Full year net investment income was $68.7 million, down 7.2% over 2010.
The loss ratio in the fourth quarter was 81% compared with 38.6% in the year-ago quarter. Results include $40 million of catastrophe losses from Thailand floods and $26 million from other catastrophe events occurring during 2011, partially offset by $18 million of favorable prior-year loss reserve developments. Full year loss ratio was 98.3% versus 48.3% in 2010.
The combined ratio in the quarter was 116.9%, weakening from 74.1% in the year-ago quarter. Full year combined ratio was 131.1% versus 82% in 2010.
Financial Update
Montpelier ended 2011 with cash and cash equivalents of $340.3 million, up 46.5% from 2010-end.
At year end, the debt level slightly increased to $327.8 million from $327.7 million at end 2010.
Book value per share as of December 31, 2011, was $22.71, 7.7% lower than $24.61 as of December 31, 2011.
Share Repurchase
Montpelier bought back 1.2 million shares at an average price of $17.11 per share in the fourth quarter. The company is left with 145 million under its authorization.
Peer Comparison
RenaissanceRe Holdings Ltd. (RNR), which competes with Montpelier, reported fourth-quarter 2011 operating earnings of $1.11 per share, beating the Zacks Consensus Estimate of $1.06. This compares unfavorably with earnings of $3.47 in the year-ago quarter. Results deteriorated primarily due to lower underwriting income and higher expenses, which more than offset the rise in premiums and investment income.
For full year 2011, RenaissanceRe reported an operating loss of $3.22 per share against an operating profit of $9.32 per share in 2010. Loss per share also exceeded the Zacks Consensus Estimate of a loss of $3.17.
Our Take
We believe that vending MUSIC, acquisition of a property catastrophe reinsurance portfolio, and expansion of capital partnership relationships will help the company to remain more focused on underwriting operations, augment capital flexibility, and strengthen its competitive position going forward.
However, the company’s results continue to be weighed down by catastrophe losses.
We maintain an Underperform recommendation on Montpelier. The quantitative Zacks #5 Rank (short-term Strong Sell rating) for the company indicates downward pressure on the stock over the near term.
MONTPELIER RE (MRH): Free Stock Analysis Report
RENAISSANCERE (RNR): Free Stock Analysis Report
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