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Montpelier Retained at Neutral

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We are retaining our Neutral recommendation on Montpelier Re Holdings Ltd. , taking into account the improved pricing conditions and additional capital deployment in property catastrophe lines.

We believe the company is well positioned to deliver solid numbers, given its heightened exposure in the property catastrophe lines of business coupled with its increased focus on underwriting operations, capital flexibility, and competitive position.

On the positive side, the company has the advantage of cashing in on all its activities in the Bermuda region, as no income taxes are levied there. Montpelier also scores well with the rating agencies. Recently, A.M. Best Co. raised the issuer credit rating (“ICR”) on the company to ‘bbb’ from ‘bbb-’. Also, Fitch Ratings reiterated its Insurer Financial Strength (“IFS”) at 'A-' on the company’s main insurance operating subsidiary with a positive outlook.

Additionally, Montpelier is proactive in returning more value to its shareholders. It recently paid a dividend of 10.5 cents per share. The company also bears the same stance when it comes to share repurchase.

In the second quarter, the company spent $48 million to buyback 2.4 million shares. It had already spent $12 million to repurchase approximately 0.6 million shares in the third quarter and is left with $59.4 million under its authorization as of June 30, 2012.

However, these positives are neutralized by a few concerns, the most prominent being the company’s significant exposure to catastrophic events which considerably hinder its earnings.

The company competes closely with Berkshire Hathaway Inc. (BRK.B - Free Report) and RenaissanceRe Holdings Ltd. (RNR - Free Report) . Montpelier currently retains a Zacks #2 Rank, which translates into a short-term Buy rating.

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