Montpelier Re Holdings Ltd. (MRH) expects fourth quarter 2011 net operating loss in the band of 25 -35 cents per share. The company also estimates its 2011 year end book value to be in the range of $22.60 -$22.70 per share.
Montpelier’s fourth quarter loss guidance includes an adverse impact of $40 million arising from floods in Thailand, an adverse impact of $26 million from catastrophe losses and also takes into account favorable prior year loss reserve development of $18 million.
The Zacks Consensus Estimate for fourth quarter 2011 is 55 cents per share. For full year 2011, the Zacks Consensus Estimate predicts a loss of $1.62 per share.
The company also expects a sequential increase of 2% in its year end 2011 book value, translating into $22.60 -$22.70 per share. The increase takes into account net realized and unrealized investment and foreign exchange gains of $30 million, gain from the sale of Montpelier U.S. Insurance Company (“MUSIC”) of $11 million and a positive impact of share repurchases worth $20 million.
Montpelier reported a weak third quarter largely due to catastrophe losses, resulting from Hurricane Irene and the Texas wildfires, U.S. regional aggregate covers and July Danish floods. However, favorable prior year loss reserve movements were a partial offset.
Montpelier is scheduled to release its fourth quarter and full year 2011 results on February 9, 2012, after the bell.
We believe that the vending of MUSIC, acquisition of a property catastrophe reinsurance portfolio, and expansion of capital partnership relationships will help the company to remain more focused on underwriting operations, augment capital flexibility, and solidify its competitive position going forward. Also, to return more value to shareholders, the company has raised its dividend.
However, the company’s exposure to catastrophe losses makes us a little cautious. We retain our Neutral long term recommendation on Montpelier. The quantitative Zacks #3 Rank (short -term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.
Headquartered in Pembroke, Bermuda, Montpelier, through its subsidiaries in the U.S., the U.K. and Switzerland, provides customized and innovative reinsurance and insurance solutions to the global market. The company competes with peers like RenaissanceRe Holdings Ltd. (RNR), Flagstone Reinsurance Holdings SA (FSR) and Validus Holdings Ltd. (VR).
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