Montpelier Hikes Dividend

The board of directors of  Montpelier Re Holdings Ltd. (MRH - Analyst Report) approved a 5% increase in its quarterly dividend. The increased dividend of 10.5 cents will be paid on or before January 15, 2012, to shareholders of record as of December 31, 2011.

Montpelier has a consistent track record of paying dividends regularly, marking the straight third year of dividend increase with this approval. The prior authorization was made on November 2010. The board, then, had approved an 11% dividend hike.

The dividend hike was primarily supported by Montpelier’s strong balance sheet and its ability to generate healthy cash flow. Montpelier’s annualized dividend yield of 2.43% is higher than one of its nearest peers Flagstone Reinsurance Holdings SA (FSR - Snapshot Report) with the latter’s annualized dividend yield of 2.15%.

Concurrently, the board also declared a quarterly dividend of 55.4688 per 8.875% Non-Cumulative Preferred Share, Series A. 

Following severe catastrophe losses, which have affected the property and casualty insurers, good news seems to be coming their way. Last w eek, property and casualty insurer ACE Limited (ACE - Analyst Report) announced its intention to boost its dividend by a substantial 33%. Another property and casualty insurer RLI Corp. (RLI - Analyst Report) also approved a special dividend of $5.00.

Montpelier suffered badly in the third quarter with operating loss widening from the Zacks Consensus Estimate and results comparing unfavorably with year-ago earnings largely due to cat losses.

Net insurance and reinsurance premiums earned declined, net investment income dipped, the company reported an underwriting loss with the combined ratio deteriorating.

Amidst all the bad news, the company, remains focused on its short tail reinsurance underwriting, it divested Montpelier U.S. Insurance Company, which writes insurance risks that do not conform to normal underwriting patterns for standard lines. Also, the divestiture will also help the company deploy capital for its Bermuda and London platforms and is expected to be accretive to book value growth over the long term.

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.

It is likely possible that these positives combined with the recent approval boosted investor confidence in the stock.  The share price rose 2.7% to close at $17.31 on Friday.

The quantitative Zacks #5 Rank (short -term Strong Sell rating) for the company indicates downward pressure on the stock over the near term. Following the announcement, there is a possibility that analysts might revise their estimates upward, driving the rank upwards. We retain our long- term Underperform recommendation on Montpelier.

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.

Read the full analyst report on RLI

Read the full analyst report on ACE

Read the full analyst report on MRH

Read the full analyst report on FSR