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Montpelier Re Holdings Ltd. (MRH - Analyst Report) reported second quarter 2012 operating income of 74 cents per share, surpassing the Zacks Consensus Estimate by 4 cents. Results exhibited a massive improvement from 8 cents earned in the prior-year quarter. Operating income of $43.6 million, compared favorably with $5.2 million in second quarter 2011.

Including net realized investment gains of $7.4 million, net unrealized investment gains of $5.9 million, net losses from investment-related derivative instruments of $0.8 million, net foreign exchange gain of $2.9 million and net gains from foreign exchange-related derivative instruments of $1.5 million, the company reported a net income of $62.1 million or $1.06 per share, compared with $21.2 million or 33 cents per share in the second quarter of 2011.

Operational Update

Gross premiums written improved 17% year over year, reflecting improved pricing conditions and additional capital deployment in property catastrophe lines.

Net insurance and reinsurance premiums earned declined 3.9% year over year to $160.5 million in the quarter.

Montpelier booked underwriting profit of $34.6 million in the quarter, reversing the loss of $3.8 million in the year-ago quarter.

Net investment income in the quarter came in at $17.2 million, inching up from $17.1 million in the year ago-quarter.

The loss ratio in the quarter was 39.2% compared with 68.8% in the year-ago quarter. Reported quarter loss ratio includes $17 million of favorable prior-year loss reserve movements.

The combined ratio in the quarter was 76.5%, a stark improvement from 102.6% reported in the year-ago quarter.

Financial Update

Montpelier exited the quarter with cash and cash equivalents of $652.3 million, up 39% from 2011-end.

At quarter end, the debt level slightly increased to $327.9 million from $327.8 million at the end of 2011.

Book value per share as of June 30, 2012, was $25.36, 8.3% higher than $23.36 as of June 30, 2011.

Share Repurchase

Montpelier spent $48 million to buyback approximately 2.4 million shares in the second quarter of 2012. To date, in the third quarter, the company already spent $12 million to repurchase approximately 0.6 million shares.

Our Take

Montpelier is well positioned to deliver solid numbers going forward, given its increased exposure in the property catastrophe lines of business. Also, focusing on underwriting operations, augmenting capital flexibility, and strengthening its competitive position augur well going forward. It scores strongly with the rating agencies.

The company also benefits from tax exemptions in Bermuda as no income taxes are levied there. Additionally, Bermuda Ministry of Finance has assured exemption of Bermuda-imposed income, withholding and capital gains taxes until 2035 on all Bermuda-based subsidiaries.

We maintain a ‘Neutral’ recommendation on Montpelier. The quantitative Zacks #2 Rank (short-term Buy rating) for the company indicates a slight boost on the stock over the near term.

RenaissanceRe Holdings Ltd. (RNR - Analyst Report), a close competitor of Montpelier, is scheduled to release its second quarter results on July 31 after the bell. It also carries a Zacks #2 Rank.
 

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