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Montpelier Re Betters Estimate

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Montpelier Re Holdings Ltd. reported fourth quarter 2012 operating loss of 31 cents per share, better than the Zacks Consensus Estimate loss of 80 cents. Quarterly loss was wider than loss of 27 cents incurred in the year-ago quarter.

Including realized and unrealized investment gains of $3 million, net foreign exchange losses of $3 million and loss on early extinguishment of debt of $10 million, the company reported net loss of 40 cents per share against net income of 40 cents per share in the fourth quarter of 2011.

Quarterly Operational Update

Gross premiums written increased 2.9% year over year. Net insurance and reinsurance premiums earned improved 5.6% year over year to $156.6 million.

Underwriting loss incurred was $25.0 million compared with a loss of $25.1 million in the year-ago quarter.

Net investment income came in at $16.8 million, down 1.7% from $17.1 million in the year-ago quarter.

The loss ratio was 81.7% compared with 81.3% in the year-ago quarter. The combined ratio improved 10 basis points from the year-ago quarter to 116%.

Full Year Highlights

Operating income reached $2.58 per share, exceeding the Zacks Consensus Estimate of $2.12. Results reversed the loss of $2.50 incurred in 2011.

Including $82 million of realized and unrealized investment gains, $9 million of net foreign exchange losses and a $10 million loss on early extinguishment of debt, net income was recorded at $3.67 per share in 2012, rebounding from the year-ago loss of $2.01 per share.

Financial Update

Montpelier Re exited 2012 with cash and cash equivalents of $401.4 million, down 14.3% from the end of 2011.

At the end of 2012, the debt level increased to $399.1 million from $327.8 million at the end of 2011.

Book value per share as of Dec 31, 2012, came in at $26.14, up 17% year over year.

Share Repurchase and Dividend Update

Montpelier Re spent $13 million to buyback 0.59 million common shares in the fourth quarter taking the total amount spent to repurchase 5.98 million shares in 2012 to $121 million.

In Nov 2012, the board approved a 9.5% increase in its quarterly dividend. Montpelier will now pay a quarterly dividend of 11.5 cents per share.

Performance of Other Property and Casualty Insurers

RLI Corporation (RLI - Free Report) reported fourth-quarter 2012 operating earnings of 89 cents per share, surpassing the Zacks Consensus Estimate of 44 cents by 102%. However, it missed the year-ago level of $1.13 by 32.1%.

Chubb Corp. (CB - Free Report) reported the fourth-quarter operating earnings of 16 cents per share, significantly ahead of the Zacks Consensus Estimate of a loss of 46 cents per share. Earnings were down substantially by 90% year over year.

Allstate Corporation’s (ALL - Free Report) fourth-quarter 2012 operating earnings per share of 59 cents significantly beat the Zacks Consensus Estimate of a loss of 7 cents, but lagged the year-ago quarter’s earnings of $1.45 a share.

Looking Forward

Montpelier Re expects net written premiums in the first quarter of 2013 to improve 1%–5%, on the back of targeted growth in property catastrophe and marine portfolios. However, soft performance in few specialty lines is expected to offset the positives.

Our Take

Montpelier Re is well positioned to deliver robust 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 also expanded underwriting partnerships with the launch of the Blue Capital asset management platform in December last year. Moreover, the company benefits from tax exemptions in Bermuda.

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

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