Background
Montpelier Re Holdings is a Bermudian reinsurance company for the global insurance market, conducting its reinsurance operations through a wholly-owned subsidiary, Montpelier Re.

Founded by White Mountains Insurance Group, Ltd. and Benfield Group plc in the wake of the events of September 11, 2001, Montpelier commenced operations in December 2001 with approximately $1.0 billion of capital.
The company assembled a senior management team with significant industry expertise and long-standing industry relationships. Montpelier seeks to identify attractive reinsurance opportunities by capitalising on management’s significant underwriting experience, using catastrophe modelling software and developing the company’s own risk pricing and capital allocation models.
Following three highly successful years, the company had developed excess capital and at the end of March 2005 returned $390 million to its shareholders by way of a special dividend.

Following the four named hurricanes that hit Florida in quick succession last year, Hurricane Katrina may have cost the company as much as 40 percent of its capital, although estimates are still only that. As a consequence, the company raised $100 million through the sale of ordinary shares too Lehman Brothers in mid-September 2005.

The company regards its principal competitive strengths as:

1. the skills of its underwriting team, composed of experienced underwriters with multiple major market and sector experience;
2. a highly centralised and tightly focused business model, with all underwriting from one location with emphasis on property and short-tail specialty lines, thereby minimising pricing risk;
3. a global gathering system with a highly profitable global portfolio leveraged by broad market relationships;
4. financial strength and flexibility, with a large and sound balance sheet unburdened by pre-2002 liabilities; and
5. sophisticated proprietary technology.

Spotlight – Focused product range
Montpelier Re is regarded as a “pure” property catastrophe reinsurer, with the bulk of its business concentrated in that area.
Montpelier underwrites three main lines of business:

• Property catastrophe, made up of catastrophe excess and retrocessional (non-casualty). For the first six months of 2005, these lines of business represented 41.6 percent of gross written premiums;
• Property specialty, made up of facultative and direct, property risk excess, and property pro rata, which for the first half of 2005 represented 37.4 percent of gross premiums written; and
• Other specialty lines, composed of aviation; marine; personal accident and life catastrophe excess; sabotage and terrorism; workers’ compensation catastrophe excess; and casualty; and crop/hail cover. This segment represented 20.8 percent of gross written premiums for the first half of 2005.

      A small (non-renewed) amount of qualifying quota share business is also underwritten, which accounted for 0.2 percent of gross premiums written in the first half of 2005.

Analysis
Perhaps the most important development in Montpelier’s portfolio in 2004 was the growth in its property specialty and other specialty categories of business.

This offset the non-renewal of the qualifying quota share business that had represented a significant volume of premium in the first two years of operation. Contracts added in core property and specialty areas during the year, along with pruning of exposures in select geographical regions gave the portfolio a better diversity and balance.

These actions proved prudent and held the company in good stead against the onslaught of record natural catastrophes suffered by the industry in 2004, and again in 2005 as Hurricanes Katrina and Rita had their most dramatic effect on property catastrophe specialists such as Montpelier.

During 2004, the company completed the build-out of its senior underwriting staff. Specifically, it added senior underwriters in the retrocession, international and terrorism divisions. The company also added a number of assistant underwriters strengthening backup support throughout the underwriting side.

The full deployment of CATM2, the second generation of Montpelier’s capital allocation model, along with the roll out of its optimisation technologies, proved invaluable to underwriters in their decision-making. The company’s actuarial/modelling unit continues to provide underwriters and management with pricing and risk management tools that are among the best in the business.

In the second quarter of 2005, Montpelier participated in the founding of a new reinsurance vehicle, Rockridge Reinsurance Ltd., which was established to assume attractive high-layer, short-tail risks, principally from Montpelier's wholly-owned subsidiary, Montpelier Re.

Rockridge was capitalised with $90.9 million in equity, including a $10 million investment by Montpelier Re. The new relationship with Rockridge provides Montpelier with the capacity to increase gross lines in specific programmes where it sees favourable underwriting opportunities. Montpelier then cedes this incremental business to Rockridge and earns fees for the services it provides.

Website
www.montpelierre.bm