Montpelier's Cat Loss Guidance

Zacks

Montpelier Re Holdings Ltd. (MRH) expects fourth quarter 2012 pretax loss from Superstorm Sandy to approximate $95 million, net of reinsurance recoveries and reinstatement premiums.

The company posted strong results in each of the three quarters in 2012 aided by lower catastrophe activities. However, cat loss stemming from Sandy might alter the picture in the final quarter. Loss modeling companies project the amount to be approximately $20–$22 billion.

The Zacks Consensus Estimate for the fourth quarter and full year 2012 are currently pegged at a loss of 31 cents and earnings of $2.45. While fourth quarter estimates represents a year-over-year decline of 13.6%, full year estimate translates into a year- over-year improvement of nearly 198%.

Each of the three reported quarters exhibited huge improvement in underwriting results, posting underwriting profit, rebounding from underwriting loss incurred in each of the three quarters in 2011. Combined ratio also exhibited huge year-over-year improvement.

Another property and casualty insurer, ACE Limited (ACE) expects loss from Superstorm Sandy to approximate $380 million after tax, net of reinsurance and including reinstatement premiums in the fourth quarter of 2012.

Concurrently, it revised its full year 2012 earnings expectation to $7.43 to $7.53 per share. The guidance is lowered from the prior expectation of $7.73–$8.03 per share to accommodate the higher-than-expected catastrophe loss.

We believe Montpelier is well positioned to deliver solid 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.  We retain our Neutral recommendation on Montpelier.

Montpelier and ACE Limited, both carry a Zacks #3 Rank, translating into a short-term Hold rating.

 

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