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:
- the skills
of its underwriting team, composed of experienced underwriters with
multiple major market and sector experience;
- 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;
- a global gathering system with a highly
profitable global portfolio leveraged by broad market relationships;
- financial
strength and flexibility, with a large and sound balance sheet unburdened
by pre-2002 liabilities; and
- 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.
Senior management
Chairman, president and CEO: Anthony Taylor
COO: Thomas Busher
CFO: Kernan Oberting
Financial data
(half-year to June 30, 2005)
Gross premiums written: $582 million, up 7 percent
Net premiums earned: $408 million, up 6 percent
Net income: $183.2 million, down 15 percent
Shareholders’ equity: $1.463 billion, down 17 percent
Website
www.montpelierre.bm
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