On Tuesday, Montpelier Reinsurance Ltd. (Montpelier Re), the principal operating subsidiary of Montpelier Re Holdings Ltd. (MRH), won a dispute case against Manufacturers Property & Casualty Limited (MPCL), a subsidiary of Manulife Financial Corporation (MFC). As a result, Montpelier Re will receive an interest of approximately $2.5 million and the outstanding losses on the disputed contracts from MPCL. Also, MPCL’s claim for rescission was dismissed.
The legal proceedings involved a dispute concerning two reinsurance protection contracts that Montpelier Re purchased from MPCL in 2005. In October 2007, following the failure of contractually-mandated mediation, Montpelier Re received a notice of arbitration from MPCL. MPCL sought in the arbitration to rescind, in whole or in part, the disputed contracts. The hearings in the arbitration were completed in February 2010.
In a separate development, Montpelier Re Holdings said that it does not anticipate an increase in its expected net loss from the Chilean earthquake and Windstorm Xynthia over the amount reported at the end of the first quarter of 2010.
Montpelier Re estimates a loss from the earthquake to range between $75 million and $100 million and losses from Windstorm Xynthia of about $10 million. At the end of the first quarter of 2010, loss from the Chilean earthquake was $94 million while Windstorm Xynthia in Europe resulted in a loss of $3 million.
The company also maintains its pre-tax net loss guidance of $20 million, rising from a fire outbreak in Deepwater Horizon, a semisubmersible drilling rig.
Montpelier Re Holdings continues to benefit from its transformation from a Bermuda “monoline” property catastrophe reinsurer to a globally diversified catastrophe specialist with operations expanding in the U.S. and the U.K. Also, its short-tailed line of business leaves it less susceptible to incur losses several years after writing a policy than many of its peers. The company is also rated positively by rating agencies, reflecting its strong financial position and its superior claims paying ability.
However, the current pricing environment in the primary insurance market and the sluggish economy could 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. Moreover, Montpelier Re Holdings has substantial exposure to losses resulting from natural and man-made disasters and other catastrophic events. We thus remain Neutral on Montpelier Re Holdings.
Read the full analyst report on “MRH”
Read the full analyst report on “MFC”
Zacks Investment Research
