We recently downgraded Montpelier Re Holdings (MRH) to Underperform on apprehensions that the current pricing environment in the primary insurance market and the stressed economy would restrict top-line growth.
Additionally, there exists execution risk with the newer platforms, and we expect investment yields to remain under pressure in the near term.
Montpelier is experiencing weakness in its commercial property book. Its ability to sustain the level of price improvements seen in 2009 is increasingly challenged in the current economic environment.
During the fourth quarter conference call, management forecast a 20% decline in net premiums written in the first quarter of 2011. For fiscal 2011, Montpelier expects continued lower net written premiums.
Montpelier remains focused to expand its underwriting platform beyond Bermuda. However, the new lines of business that the company is developing through these platforms will change the composition of its overall book of business. Also, these platforms are relatively immature. We believe there is some execution risk in the company’s strategy of diversifying its business model.
Montpelier has substantial exposure to losses resulting from natural and man-made disasters and other catastrophic events. During 2010 Montpelier incurred $135.9 million in net losses associated with earthquakes in Chile and New Zealand. The combined ratio in 2010 deteriorated substantially to 82% from 62.2% in 2009.
Montpelier expects preliminary net loss to approximate $70 million, net of reinstatement premium, attributable to the earthquake in New Zealand in February 2011. The company also expects to incur a loss of $15 million from the January floods and Cyclone Yasi in Australia.
Over the last 7 days, none of the analysts covering the stock revised their estimates for the first quarter 2011 and fiscal year 2011. However, 1 out of 4 analysts lowered the estimate for the second quarter 2011 over the past one week. For 2012, 1 out of 5 analysts revised the estimate downward over the last 7 days.
The Zacks Consensus Estimate for first-quarter 2011 is 65 cents per share. For full years 2011 and 2012, the Zacks Consensus Estimates are, respectively, $2.51 per share and $2.45 per share.
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. It competes with RenaissanceRe Holdings Ltd. (RNR).
MONTPELIER RE (MRH): Free Stock Analysis Report
RENAISSANCERE (RNR): Free Stock Analysis Report
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