Montpelier CEO Vows To Ignore Bad Biz

Montpelier CEO Vows To Ignore Bad Biz

NU Online News Service, Feb. 18, 1:55 p.m. EST?Montpelier Re expects to walk away from underpriced business and decrease premium volume this year, the company's chief executive said yesterday.[@@]

Anthony Taylor, president and chief executive of the Bermuda-based reinsurer, in the course of reporting more than $100 million in income for fourth-quarter 2004 told an analysts conference call that his company's premiums will shrink 10 percent in 2005.

He also revealed his company's estimation that industrywide 2004 catastrophe losses are far greater than numbers previously in circulation.

Discussing the company's decision to tighten its belt and forego an appetite for some new business when market prices are declining, Mr. Taylor took a swipe at some competitors.

There is, he said, "a serious disconnect between top talking at reinsurance company managements and the reality of actions of their underwriting teams."

He added that Montpelier would respond to the new [pricing] environment by managing capital so it's aligned with the amount of business the company writes, highlighting the payment of $95 million in dividends in 2004 as one such measure.

"We can easily slim down our premium volume and adjust our capital base to adapt to a more challenging environment," he said, noting that Montpelier operates from a single location with a staff of only 65 people.

"So to anyone out there who is still bent on growth and global domination in today's declining market, I say good luck to you," Mr. Taylor concluded. "If you continue down that road, you will only hasten the market turnaround."

Montpelier reported net income for the fourth quarter was $102.4 million ($1.53 per share) and $240.3 million ($3.55 per share) for the full year. The comparable figures for 2003 were $99.9 million for the fourth quarter and $407.1 million for the year.

Mr. Taylor said it was "no mean feat" that the company achieved an overall loss ratio of 51.4 for all of 2004?"the worst year ever for [property] cat losses"?and a 77.8 combined ratio.

With U.S. hurricane and Japan typhoon losses pushing full-year net income to half the level reported in 2003, Mr. Taylor took some time to review his company's estimates of industrywide losses and how they have changed.

He noted that Montpelier's estimates of the industry's losses from hurricanes and typhoons have grown by $7 billion?to $37 billion from an original estimate of $30 billion put out in October. The figures, he said, are higher than the widely reported $27.3 billion number from the Property Claims Services unit of Jersey City, N.J.-based ISO, because the Montpelier estimates include Caribbean losses, marine and energy losses, and loss adjustment expenses.

Industrywide Marine and energy losses tripled from $750 million to $2.25 billion, he said, pointing to the delayed recognition by the energy industry of a mudslide in the Gulf of Mexico caused by Hurricane Ivan.

As for Montpelier's exposure, Mr. Taylor said that the company estimates net losses of $240 million?just above the initial $185-to-$235 million range which the company had announced three months ago.

Discussing market pricing conditions, Mr. Taylor said: "I now find that I was wrong when I said that U.S. property renewal reinsurance rates would be flat to up 10 percent, and that international property reinsurance rates would stabilize."

January renewals were "broadly disappointing," he said. "We saw many contracts with reductions of 10-15 percent, and some 30 percent reductions."

For the business that Montpelier renewed, Mr. Taylor said an internal pricing index revealed a modest reduction of 4 percent across the entire book of business. "But this number obscures what really happened at year-end," he said, noting the firm cancelled lines on many programs that did not meet return requirement.

Citing a specific example, he said Montpelier cancelled an entire book of Scandinavian business that the market was pricing 15 percent below last year?business that likely suffered total losses from a hurricane that hit just eight days into the new year.

As a result of Montpelier's adherence to its promise to walk away from inadequately priced business, he said premium bound by Montpelier at Jan. 1 fell 20 percent below the prior year's January renewals.

With Japanese windstorm business set to renew in April, and Florida hurricane covers coming up in June, "you should expect [our] premium income to be down at least 10 percent for the year?and perhaps more if, as the year develops, we find we don't like the rates the market is setting" he told analysts.