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Q4 Earnings Outshine at Montpelier Re

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Montpelier Re Holdings Ltd. has successfully managed to keep its earnings streak alive with its fourth-quarter and full year 2013 earnings results. This property and casualty insurer reported operating net earnings of $1.78 per share in the fourth quarter, surpassing the Zacks Consensus Estimate by a whopping 87% and marking the ninth straight quarter of positive earnings surprise. Moreover, earnings rebounded substantially from a loss of 31 cents per share incurred in the year-ago quarter.

The quarter experienced solid underwriting results that contributed to the results.

Including net realized investment losses of $6.9 million, net unrealized investment gains of $4.4 million, net unrealized investment gains of $3.7 million, net losses from investment-related derivative instruments of $6.5 million, net foreign exchange losses of $9.4 million, net losses from foreign exchange-related derivative instruments of $1.7 million, and expenses associated with the Blue Capital Reinsurance Holdings Ltd (BCRH) initial public offering (IPO), Montpelier Re reported net income of $73.4 million or $1.44 per share in the fourth quarter. The figure compared favorably with net loss of $26.6 million or 48 cents per share incurred in the prior-year quarter.    

Full year operating net income came in at $5.24, beating the Zacks Consensus Estimate by 17.5% and more than doubling the 2013 equivalent number.

Shares of Montpelier Re gained about 4.32% in the after-market session, indicating that the market has taken this release positively.

Quarterly Operational Update

Montpelier Re’s gross premiums written decreased 7.2% year over year to $87.6 million. Net insurance and reinsurance premiums were $77.8 million, declining 6.7% year over year.

Underwriting income of $89.8 million in the reported quarter rebounded from the year-ago loss of $25.0 million.

Montpelier Re’s net investment income came in at $14.2 million, down 15.5% from $16.8 million in the year-ago quarter.

Loss ratio was 1.6% in the fourth quarter, improving significantly from 81.7%. Combined ratio also improved remarkably to 39.4% from 116.0% in the year-ago quarter.

Financial Update

Montpelier Re exited 2013 with cash and investments of $3.31 million, down 0.3% from the end of 2012.

At the end of the quarter, total debt was $399.2 million, inching up from $399.1 million at 2012-end.

Book value per share as of Dec 31, 2013 came in at $29.42, up 12.5% year over year.

Share Repurchase Update

Montpelier Re spent $22.8 million to buy back 0.83 million common shares in the fourth quarter. Following the end of the reported quarter, to date, the company has already spent nearly $35 million to repurchase 1.25 million shares.

In Nov 2013, the board also increased the share buyback authorization by $150 million.

Dividend Update

On Jan 14, 2014, Montpelier Re paid 12.50 cents per share in quarterly dividend to the shareholders of record as of Dec 31, 2013. The payout represents a 9% increase from the prior payout.

Our Take

Montpelier Re maintained its trend of outperforming expectations despite a competitive market, riding on the strength of underwriting performances.

Montpelier Re 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 in the future. In addition, the IPO of BCRH solidified its collateralized reinsurance presence.

Moreover, Montpelier Re enjoys the benefit of tax exemptions in Bermuda.

Montpelier Re currently carries a Zacks Rank #3 (Hold).

Performance of Other Property and Casualty Insurers

The Travelers Companies Inc. (TRV - Free Report) reported operating net earnings of $2.68 per share in the fourth quarter of 2013, surpassing the Zacks Consensus Estimate by 23.5%. Moreover, earnings improved nearly fourfold on a year-over-year basis.

RLI Corporation (RLI - Free Report) reported fourth-quarter operating earnings of 72 cents per share exceeding the Zacks Consensus Estimate by 28.6% and the year-ago quarter’s earnings by 64%.

ACE Limited reported operating net earnings of $2.39 per share in the fourth quarter of 2013, surpassing the Zacks Consensus Estimate by 19.5%. Moreover, earnings surged nearly 67% on a year-over-year basis.

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