Montpelier Retains 'Underperform'

We retain our Underperform recommendation on Montpelier Re Holdings Ltd. (MRH - Analyst Report) given its exposure to catastrophe losses coupled with the current pricing environment in the primary insurance market and the stressed economy that is expected to restrict top-line growth.

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 down from the first quarter loss to $39 million. Also lower investment income and higher operating expenses added to the woes. However, favorable prior year loss reserve movements were a partial offset. Operating earnings in the second quarter fell short of the Zacks Consensus Estimates as well as year ago earnings.

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.

Counting on the 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 shareholders through share buybacks. In the second quarter of 2011, Montpelier spent $15 million to buy back shares. The company also pays dividend regularly.

The Zacks Consensus Estimate for third-quarter 2011 is 38 cents per share. For full years 2011 and 2012, the Zacks Consensus Estimates are respectively, a loss of 72 cents and earnings of $2.25 per share.

The quantitative Zacks #5 Rank (short-term Strong 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. It competes with RenaissanceRe Holdings Ltd. (RNR - Analyst Report), Flagstone Reinsurance Holdings SA (FSR - Snapshot Report) and Validus Holdings Ltd.(VR - Snapshot Report).

Read the full analyst report on RNR

Read the full analyst report on MRH

Read the full analyst report on VR

Read the full analyst report on FSR