Montpelier Re Holdings Ltd. (MRH) reported third-quarter 2013 operating net income of $1.38 per share, beating the Zacks Consensus Estimate of 74 cents by a significant 86%. Earnings also surged 62% from 85 cents per share earned in the year-ago quarter.
The quarter experienced solid underwriting results. All the segments delivered strong profits.
Including net realized investment losses of $6.9 million, net unrealized investment gains of $26.7 million, net losses from investment-related derivative instruments of $3.6 million, net foreign exchange losses of $22.3 million and net gains from foreign exchange-related derivative instruments of $2.8 million, Montpelier Re reported net income of $53 million or $1.02 per share in the third quarter. It compared unfavorably with net income of $71.7 million or $1.25 per share in the prior-year quarter.
Quarterly Operational Update
Montpelier Re’s gross premiums written decreased 10.3% year over year to $114.5 million. Net insurance and reinsurance premiums were $153 million, in line with the year-ago number.
Underwriting income improved 68.8% year over year to $70.4 million.
Montpelier Re’s net investment income came in at $16.7 million, up 7.7% from $15.5 million in the year-ago quarter.
The loss ratio was 18% in the reported quarter, improving 1990 basis points (bps) year over year. Combined ratio improved 1880 bps from the year-ago quarter to 54%.
Financial Update
Montpelier Re exited the third quarter of 2013 with cash and investments of $3.24 million, down 2.4% from the end of 2012.
At the end of the quarter, total debt was $399.1 million, flat with the 2012 end-level.
Book value per share as of Sep 30, 2013 came in at $28.06, up 5.5% year over year.
Share Repurchase Update
Montpelier Re spent $31.5 million to buy back 1.24 million common shares in the third quarter. Following the end of the reported quarter, till date, the company has already spent $8.8 million to repurchase 0.3 million shares.
Dividend Update
On Oct 15, 2013, Montpelier Re paid 11.5 cents per share in quarterly dividend to the shareholders of record as of Sep 30, 2013.
Business Update
During the second quarter, Montpelier Re had established Blue Capital Reinsurance Holdings Ltd (BCRH), a Bermuda reinsurance holding company.
On Oct 7, 2013, BCRH filed its initial Registration Statement with the SEC for expected initial public offering. The common shares will be listed on the New York Stock Exchange. Montpelier Re expects to purchase common shares of BCRH in a concurrent private placement transaction on completion of the offering.
Performance of Other Property and Casualty Insurers
RLI Corporation (RLI) reported third-quarter 2013 operating earnings of $1.40 per share, surpassing the Zacks Consensus Estimate by 47% as well as the year-ago earnings by 37.2%. The year-over-year improvement came on the back of better underwriting results in the Property and Casualty segments.
The Travelers Companies Inc. (TRV) reported operating net earnings of $2.35 per share in the third quarter of 2013, beating the Zacks Consensus Estimate of $1.99 per share. Results improved 5.9% year over year. The outperformance was driven by improvement in underlying underwriting gains.
ACE Limited’s (ACE) reported third-quarter 2013 operating net income of $2.49 per share, ahead of the Zacks Consensus Estimate by 12.7% and the year-ago earnings by 23.9%. Solid underwriting performances aided the better-than-expected results.
Our Take
Montpelier Re continued its trend of outperforming expectations despite a competitive market, riding on the strength of underwriting performances.
Montpelier Re is well positioned to deliver robust numbers going forward, given its increased exposure in the property catastrophe lines of business. In addition, focusing on underwriting operations, augmenting capital flexibility and strengthening its competitive position augur well in the future. Moreover, Montpelier Re enjoys the benefit of tax exemptions in Bermuda.
Montpelier Re currently carries a Zacks Rank #1 (Strong Buy).
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