Collateralized reinsurance contribution up again at Montpelier Re in Q1

Bermudian reinsurance firm Montpelier Re, in the midst of being acquired by Endurance, has maintained its collateralized reinsurance underwriting activities through Q1 as the contribution from its Blue Capital unit grew as a percentage of premiums written.

Montpelier Re filed its quarterly report with the SEC yesterday, May 4th, in which it breaks out the underwriting results from its different units. The unit, operated by Blue Capital Management Ltd., the third-party reinsurance capital investment manager of Montpelier Re, continued to make an important contribution to the firm.

Overall Montpelier Re underwrote fewer premiums in the first-quarter compared to the prior year period, which has resulted in a drop in overall net income to $63.7m from $102.2m. However, as well as a continued pull-back on premiums written, Montpelier Re experienced higher loss expenses and lower investment income which also impacted the quarter.

The collateralized reinsurance segment actually grew premiums slightly, the only segment at Montpelier Re to do so. The segment underwrote $34.5m of collateralized reinsurance premiums in Q1, compared to $34m a year earlier.

Premiums earned by the collateralized reinsurance segment hit $22.8m for Q1, up on the $20.4m reported a year before. However loss expenses and acquisition costs came in slightly higher for this quarter, resulting in underwriting income of $14.4m, which is slightly down on last Q1’s $14.5m.

That’s a pretty impressive underwriting result for the collateralized reinsurance operations in the last quarter, given the lower pricing in the softened market compared to a year ago.

In the first-quarter of 2015 the premiums underwritten by Blue Capital and the collateralized reinsurance operations accounts for 14% of the total premiums written at Montpelier Re. That’s an increased contribution compared to a year earlier, when the collateralized reinsurance premiums only accounted for 12% of the total.

This demonstrates the important role that third-party reinsurance capital, insurance-linked securities (ILS) and collateralized reinsurance plays at reinsurers. When the market is tough the contribution from the collateralized operations can be an extremely welcome boost to the overall results.

During the quarter Montpelier Bermuda ceded a slightly larger amount of premiums to the collateralized reinsurance segment ($11.4m compared to $8.2m), under the retrocessional agreement that is in place. This allows Montpelier to leverage third-party capital to further optimise its book.

Also of note in the quarterly results is the amendment of the agreement for the $20m credit facility that Blue Capital benefits from. This agreement appears to have been amended to replace Montpelier Re as named parent to Endurance Specialty Holdings, in anticipation of the completion of the M&A deal.