On Apr 12, 2013, we upgraded Montpelier Re Holdings Ltd. (MRH) to Outperform from Neutral, as it remains well positioned to deliver solid numbers going forward, given its increased exposure in the property catastrophe lines of business. In addition, focusing on underwriting operations, augmenting capital flexibility, and strengthening its competitive position augur well for the company going forward. This property and casualty insurer presently carries a Zacks Rank #1 (Strong Buy).
Montpelier has been continuously experiencing upward revisions in estimates. Over the last 30 days, 2 of 5 estimates were revised upward, pushing the Zacks Consensus Estimate for 2013 to $2.60 by 5.3%. For 2014, 1 of 5 estimates moved north, pushing the Zacks Consensus Estimate to $2.60, up 2% over the same time frame.
Montpelier has expanded its underwriting reach beyond Bermuda. It has transformed from a Bermuda ‘monoline’ property catastrophe reinsurer to a global diversified catastrophe specialist. The company benefits from tax exemptions in Bermuda as no income taxes are levied there.
Gross insurance and reinsurance premiums written continue to exhibit an uptrend. Favorable performances at Montpelier Bermuda and Montpelier Syndicate 5151 continue to drive the upside. Additionally, the company also prudently manages risks by diversifying across geographies. Management expects a 1% to 5% increase in net written premiums for the first quarter of 2013.
In an effort to expand the underwriting partnership business, the company launched Blue Capital.
Additionally, it engages into share repurchases and hikes dividend to enhance shareholder value.
With respect to earnings trend, Montpelier delivered positive earnings surprise in all 4 quarters of 2012 with an average beat of 44.7%. Our proven model shows that the investment manager is likely to beat earnings in the first quarter of 2013 because it has a right combination of a positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method) and Zacks Rank. ESP or Expected Surprise Prediction, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is at +5.81%.
Other Stocks to Consider
Property and casualty insurers like AXIS Capital Holdings Ltd. (AXS), Cincinnati Financial Corp. (CINF) and Arch Capital Group Ltd. (ACGL), among others, also carry a Zacks Rank #1 (Strong Buy) and appear impressive.
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