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Strong Q2 Earnings at Montpelier

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Montpelier Re Holdings Ltd. reported second-quarter 2013 operating net income of 93 cents per share, beating the Zacks Consensus Estimate of 59 cents by almost 58%. Earnings surged 27% from 74 cents per share earned in the year-ago quarter.

The quarter experienced solid underwriting results. Both the Bermuda and London platforms delivered strong profitability.

Including net realized investment gains of $6.9 million, net unrealized investment losses of $68.1 million, net losses from investment-related derivative instruments of $7.9 million, net foreign exchange losses of $5.3 million and net losses from foreign exchange-related derivative instruments of $2.5 million, Montpelier reported net loss of $27 million or 52 cents per share in the second quarter. It compared unfavorably with net income of $62.1 million or $1.06 per share in the prior-year quarter.

Quarterly Operational Update

Montpelier’s gross premiums written decreased 4.3% year over year to $242.7 million. Net insurance and reinsurance premiums earned declined 6.2% year over year to $197.8 million.

Underwriting income improved 24.6% year over year to $43.1 million.

Montpelier’s net investment income came in at $16.7 million, down 2.9% from $17.2 million in the year-ago quarter.

The loss ratio was 34% in the reported quarter, improving 550 basis points year over year. Combined ratio improved 750 basis points from the year-ago quarter to 69%.

Financial Update

Montpelier exited the second quarter of 2013 with cash and investments of $3.26 million, down 1.8% 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 Jun 30, 2013, came in at $27.03, down 1.7% year over year.

Share Repurchase Update

Montpelier spent $77 million to buyback 3.034 million common shares in the second quarter. Following the end of the reported quarter, to date, the company already spent $7 million to repurchase 0.3 million shares.

Performance of Other Property and Casualty Insurers

RLI Corporation (RLI - Free Report) reported second-quarter 2013 operating earnings of $1.27 per share. The results surpassed both the Zacks Consensus Estimate of $1.18 by 7.6% as well as the year-ago level of $1.17 by 8.5%. The year-over-year improvement came on the back of better underwriting results at the Property and Casualty segments.

The Travelers Companies Inc. (TRV - Free Report) reported earnings of $2.13 per share in the second quarter of 2013, surpassing the Zacks Consensus Estimate of $1.58 per share. Moreover, results surged 69% from $1.23 per share in the year-ago quarter.  The outperformance was driven by lower catastrophe losses along with sustained improvement in underlying underwriting margins across all segments. However, the upside was partially offset by lower net investment income and lower net favorable prior-year reserve development.

ACE Limited’s second-quarter 2013 operating net income of $2.29 per share were up 19.3% from the Zacks Consensus Estimate of $1.92. Results improved 5.5% from $2.17 earned in the year-ago quarter.  Solid underwriting performances aided the better-than-expected results. Both the U.S. and international business operations experienced growth and better margins. ACE Limited also benefited from improved commercial property & casualty pricing environment.

Our Take

Montpelier continued the trend of outperforming expectations despite cat occurrences and competitive market riding on the strength of underwriting results.

Montpelier 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 going forward. Moreover, Montpelier benefits from tax exemptions in Bermuda.

Montpelier currently carries a Zacks Rank #4 (Sell).

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