Montpelier Retained at Neutral

We have retained our Neutral recommendation on Montpelier Re Holdings Ltd. (MRH - Analyst Report) as we expect that the catastrophe loss stemming from Hurricane Sandy will weigh on the earnings performance of the company. The insurance and reinsurance provider currently carries a Zacks Rank #3 (Hold).

Why Reiterate?

There was no earnings momentum over the last 7 days. Montpelier is scheduled to release its fourth quarter and full year 2012 results on February 7, after the closing bell. The Zacks Consensus Estimates for the fourth quarter and 2012 are currently pegged at a loss of 80 cents per share and earnings of $2.11 per share, respectively. The estimates translate into a year-over-year decline of nearly 197% for the fourth quarter, while an increase of 184% for 2012.

Though the entire industry benefited from lower catastrophe occurrences through the first nine months of last year, the occurrence of Sandy in October end will have an effect on the fourth quarter results. Montpelier expects to incur pretax loss from Hurricane Sandy to be approximately $95 million, net of reinsurance recoveries and reinstatement premiums in the fourth quarter of 2012.

Nevertheless, Montpelier’s continued focus to strengthen its operations, enhance shareholders value via dividend increase and strong scoring with rating agencies position it well for the longer term.

Additionally, Montpelier enjoys the exemption of Bermuda-imposed income, withholding and capital gains taxes until 2035 on all Bermuda-based subsidiaries, assured by Bermuda Ministry of Finance.

Other Stock to Consider

Although we have a cautious stance on Principal Financial, other stocks like Allstate Corp. (ALL - Analyst Report) and American Financial Group Inc. (AFG - Snapshot Report), which carry a Zacks Rank #1 (Strong Buy), are worth considering.