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Montpelier RE Holdings 10-Q 2008

Documents found in this filing:

  1. 10-Q
  2. Ex-3.1
  3. Ex-31.1
  4. Ex-31.2
  5. Ex-32
  6. Ex-32

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

x                              QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2008

 

OR

 

o                                  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from        to       

 

Commission file number  001-31468

 

Montpelier Re Holdings Ltd.

(Exact Name of Registrant as Specified in Its Charter)

 

Bermuda
(State or Other Jurisdiction of
Incorporation or Organization)

 

98-0428969
(I.R.S. Employer
Identification No.)

 

Montpelier House

94 Pitts Bay Road

Pembroke HM 08

Bermuda

(Address of Principal Executive Offices)

 

(441) 296-5550

(Registrant’s Telephone Number, Including Area Code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x   No  o

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer x                                   Accelerated filer o            Non-accelerated filer o            Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  o   No  x

 

As of August 6, 2008, the Registrant had 91,491,059 common shares outstanding, with a par value of 1/6 cent per share.

 

 

 



Table of Contents

 

MONTPELIER RE HOLDINGS LTD.

 

INDEX TO FORM 10-Q

 

 

 

Page

 

 

 

PART I FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements

3

 

 

 

 

Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007 (Unaudited)

3

 

 

 

 

Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months Ended June 30, 2008 and 2007 (Unaudited)

4

 

 

 

 

Consolidated Statements of Common Shareholders’ Equity for the Six Months Ended June 30, 2008 and 2007 (Unaudited)

5

 

 

 

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2007 (Unaudited)

6

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

37

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

61

 

 

 

Item 4.

Controls and Procedures

61

 

 

 

PART II OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

62

 

 

 

Item 1A.

Risk Factors

62

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

63

 

 

 

Item 3.

Defaults Upon Senior Securities

63

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

63

 

 

 

Item 5.

Other Information

64

 

 

 

Item 6.

Exhibits

65

 

 

 

SIGNATURES

65

 

2



Table of Contents

 

 

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

 

MONTPELIER RE HOLDINGS LTD.

CONSOLIDATED BALANCE SHEETS

Unaudited

 

 

 

June 30,

 

December 31,

 

(In millions of U.S. dollars, except share and per share amounts)

 

2008

 

2007

 

Assets

 

 

 

 

 

Fixed maturity investments, at fair value (amortized cost: $1,603.4 and $2,044.3)

 

$

1,586.5

 

$

2,061.5

 

Equity securities, at fair value (cost: $212.4 and $184.4)

 

224.4

 

220.2

 

Other investments (cost: $199.7 and $76.4)

 

191.2

 

77.7

 

Total investments

 

2,002.1

 

2,359.4

 

Cash and cash equivalents

 

577.2

 

453.2

 

Restricted cash

 

5.3

 

35.5

 

Securities lending collateral

 

71.1

 

192.0

 

Reinsurance recoverable on unpaid losses

 

130.4

 

152.5

 

Reinsurance recoverable on paid losses

 

34.3

 

16.8

 

Premiums receivable

 

295.7

 

160.5

 

Unearned premium ceded

 

52.2

 

21.1

 

Deferred acquisition costs

 

45.2

 

27.7

 

Accrued investment income

 

12.5

 

19.4

 

Unsettled sales of investments

 

0.6

 

56.0

 

Other assets

 

42.2

 

31.1

 

Total Assets

 

$

3,268.8

 

$

3,525.2

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Loss and loss adjustment expense reserves

 

$

828.2

 

$

860.7

 

Debt

 

352.5

 

427.4

 

Securities lending payable

 

71.7

 

193.4

 

Unearned premium

 

335.1

 

187.4

 

Insurance and reinsurance balances payable

 

64.6

 

40.7

 

Unsettled purchases of investments

 

4.0

 

23.8

 

Accounts payable, accrued expenses and other liabilities

 

41.0

 

50.0

 

Total Liabilities

 

1,697.1

 

1,783.4

 

 

 

 

 

 

 

Commitments and contingent liabilities (see Note 11)

 

 

 

 

 

 

 

 

 

 

 

Minority interest

 

 

 

 

 

Blue Ocean - preferred equity

 

 

20.6

 

Blue Ocean - common equity

 

 

68.1

 

Total Minority Interest

 

 

88.7

 

 

 

 

 

 

 

Common Shareholders’ Equity

 

 

 

 

 

Common shares at 1/6 cent par value per share - authorized 1,200,000,000 shares;

 

 

 

 

 

issued 93,368,434 and 99,290,078 shares

 

0.2

 

0.2

 

Additional paid-in capital

 

1,602.1

 

1,694.3

 

Treasury shares at cost; 1,204,771 and 0 shares

 

(18.7

)

 

Retained deficit

 

(12.1

)

(43.6

)

Accumulated other comprehensive income

 

0.2

 

2.2

 

Total Common Shareholders’ Equity

 

1,571.7

 

1,653.1

 

 

 

 

 

 

 

Total Liabilities, Minority Interest and Common Shareholders’ Equity

 

$

3,268.8

 

$

3,525.2

 

 

See Notes to Consolidated Financial Statements

 

3



Table of Contents

 

MONTPELIER RE HOLDINGS LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

Unaudited

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

(In millions of U.S. dollars, except per share and per warrant amounts)

 

2008

 

2007

 

2008

 

2007

 

Revenues

 

 

 

 

 

 

 

 

 

Gross premiums written

 

$

187.7

 

$

188.2

 

$

444.5

 

$

449.2

 

Reinsurance premiums ceded

 

(33.8

)

(21.6

)

(68.5

)

(93.3

)

Net premiums written

 

153.9

 

166.6

 

376.0

 

355.9

 

Change in net unearned premiums

 

(34.7

)

(37.5

)

(116.5

)

(84.1

)

Net premiums earned

 

119.2

 

129.1

 

259.5

 

271.8

 

Net investment income

 

21.9

 

34.4

 

46.4

 

67.5

 

Net realized and unrealized investment gains (losses)

 

(16.5

)

(5.2

)

(56.2

)

10.1

 

Net foreign exchange gains (losses)

 

(3.9

)

1.4

 

5.0

 

(1.3

)

Net expense from derivative instruments

 

(2.3

)

(1.8

)

(1.4

)

(2.8

)

Other revenue

 

0.2

 

0.6

 

0.6

 

1.2

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

118.6

 

158.5

 

253.9

 

346.5

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Underwriting expenses:

 

 

 

 

 

 

 

 

 

Loss and loss adjustment expenses

 

24.4

 

50.2

 

100.8

 

109.8

 

Acquisition costs

 

18.6

 

19.8

 

40.3

 

38.3

 

General and administrative expenses

 

25.8

 

20.4

 

53.6

 

35.8

 

Non-underwriting expenses:

 

 

 

 

 

 

 

 

 

Interest and other financing expenses

 

6.6

 

8.2

 

13.8

 

16.7

 

Total expenses

 

75.4

 

98.6

 

208.5

 

200.6

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes, extraordinary item and minority interest

 

43.2

 

59.9

 

45.4

 

145.9

 

Income tax provision

 

(0.1

)

 

(0.1

)

 

 

 

 

 

 

 

 

 

 

 

Income before extraordinary item and minority interest

 

43.1

 

59.9

 

45.3

 

145.9

 

Excess of fair value of acquired net assets over cost - Blue Ocean

 

1.0

 

 

1.0

 

 

Minority interest expense - Blue Ocean

 

 

(9.2

)

(1.9

)

(21.9

)

 

 

 

 

 

 

 

 

 

 

Net income

 

44.1

 

50.7

 

44.4

 

124.0

 

Change in foreign currency translation

 

0.1

 

 

0.1

 

 

Change in fair value of Symetra (see Note 4)

 

 

0.8

 

(2.1

)

0.1

 

Comprehensive income

 

$

44.2

 

$

51.5

 

$

42.4

 

$

124.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.51

 

$

0.53

 

$

0.50

 

$

1.29

 

Diluted earnings per share

 

0.51

 

0.53

 

0.50

 

1.29

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.075

 

$

0.075

 

$

0.150

 

$

0.150

 

Dividends declared per warrant

 

 

 

 

0.075

 

 

See Notes to Consolidated Financial Statements

 

4



Table of Contents

 

MONTPELIER RE HOLDINGS LTD.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the Six Months Ended June 30, 2008 and 2007

Unaudited

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

common

 

 

 

Additional

 

 

 

 

 

Accum. other

 

 

 

shareholders’

 

Common

 

paid-in

 

Treasury

 

Retained

 

comprehensive

 

(In millions of U.S. dollars)

 

equity

 

shares

 

capital

 

shares

 

deficit

 

income

 

Balances at January 1, 2008

 

$

1,653.1

 

$

0.2

 

$

1,694.3

 

$

 

$

(43.6

)

$

2.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

44.4

 

 

 

 

44.4

 

 

Common shares repurchased

 

(115.7

)

 

(97.0

)

(18.7

)

 

 

Other comprehensive income, after tax

 

(2.0

)

 

 

 

 

(2.0

)

Amortization of Restricted Share Units

 

4.8

 

 

4.8

 

 

 

 

Dividends declared on common shares

 

(12.9

)

 

 

 

(12.9

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at June 30, 2008

 

$

1,571.7

 

$

0.2

 

$

1,602.1

 

$

(18.7

)

$

(12.1

)

$

0.2

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

common

 

 

 

Additional

 

 

 

 

 

Accum. other

 

 

 

shareholders’

 

Common

 

paid-in

 

Treasury

 

Retained

 

comprehensive

 

 

 

equity

 

shares

 

capital

 

shares

 

deficit

 

income

 

Balances at January 1, 2007

 

$

1,492.9

 

$

0.2

 

$

1,819.2

 

$

 

$

(376.0

)

$

49.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative effect adjustment to the adoption of FAS 157 and 159

 

 

 

 

 

45.5

 

(45.5

)

Net income

 

124.0

 

 

 

 

124.0

 

 

Other comprehensive income, after tax

 

0.1

 

 

 

 

 

0.1

 

Amortization of Restricted Share Units and Director Share Plan Units

 

3.7

 

 

3.7

 

 

 

 

Common shares and warrants repurchased

 

(65.0

)

 

(65.0

)

 

 

 

Dividends declared on common shares

 

(14.6

)

 

 

 

(14.6

)

 

Dividends declared on warrants

 

(0.5

)

 

 

 

(0.5

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at June 30, 2007

 

$

1,540.6

 

$

0.2

 

$

1,757.9

 

$

 

$

(221.6

)

$

4.1

 

 

See Notes to Consolidated Financial Statements

 

5



Table of Contents

 

MONTPELIER RE HOLDINGS LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

 

 

 

Six Months Ended

 

 

 

June 30,

 

(In millions of U.S. dollars)

 

2008

 

2007

 

Cash flows from operations:

 

 

 

 

 

Net income

 

$

44.4

 

$

124.0

 

Charges (credits) to reconcile net income to net cash used for operations:

 

 

 

 

 

Excess of fair value of net assets acquired over cost - Blue Ocean

 

(1.0

)

 

Net realized and unrealized investment losses (gains)

 

56.2

 

(10.1

)

Minority interest expense - Blue Ocean

 

1.9

 

21.9

 

Amortization and depreciation

 

(3.4

)

(2.0

)

Net change in:

 

 

 

 

 

Loss and loss adjustment expense reserves

 

(32.5

)

(130.9

)

Reinsurance recoverable on paid and unpaid losses

 

4.6

 

30.4

 

Unearned premium

 

147.9

 

111.8

 

Insurance and reinsurance balances payable

 

23.9

 

(2.7

)

Unearned premium ceded

 

(31.1

)

(27.7

)

Deferred acquisition costs

 

(17.5

)

(11.3

)

Premiums receivable

 

(135.3

)

(99.4

)

Accounts payable, accrued expenses and other liabilities

 

(4.2

)

(11.6

)

Other

 

13.5

 

2.3

 

Net cash provided from (used for) operations

 

67.4

 

(5.3

)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of fixed maturity investments

 

(844.1

)

(807.7

)

Purchases of equity securities

 

(60.4

)

(28.1

)

Purchases of other investments

 

(123.4

)

(2.5

)

Sales, maturities, calls and paydowns of fixed maturity investments

 

1,318.0

 

1,074.7

 

Sales of equity securities

 

41.8

 

39.2

 

Net disposition of securities lending collateral

 

120.6

 

143.8

 

Net change in restricted cash

 

30.2

 

(36.8

)

Purchase of Blue Ocean minority interest

 

(30.5

)

 

Net acquisitions of capitalized assets

 

(9.9

)

(1.5

)

Net cash provided from investing activities

 

442.3

 

381.1

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Repayment of debt

 

(75.0

)

 

Repurchases of the Company’s common shares and warrants

 

(116.5

)

(65.0

)

Dividends paid to holders of the Company’s common shares and warrants

 

(14.5

)

(15.1

)

Dividends and distributions paid to Blue Ocean’s minority common shareholders

 

(38.1

)

(135.2

)

Dividends paid to and repurchases from Blue Ocean’s minority preferred shareholders

 

(21.0

)

(46.4

)

Net reduction in securities lending payable

 

(121.7

)

(143.8

)

Net cash used for financing activities

 

(386.8

)

(405.5

)

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

1.1

 

(0.3

)

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents during the period

 

124.0

 

(30.0

)

Cash and cash equivalents - beginning of period

 

453.2

 

313.1

 

Cash and cash equivalents - end of period

 

$

577.2

 

$

283.1

 

 

See Notes to Consolidated Financial Statements

 

6



Table of Contents

 

MONTPELIER RE HOLDINGS LTD.

 

Notes To Consolidated Financial Statements

(In millions of U.S. dollars, except share and per

share amounts or as otherwise indicated)

Unaudited

 

1.  Significant Accounting Policies

 

Basis of Presentation and Consolidation

 

These interim unaudited consolidated financial statements include the accounts of Montpelier Re Holdings Ltd. (the “Company” or the “Registrant”) and its subsidiaries and affiliates (collectively, “Montpelier”) and have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States (the “U.S.”).  The Company was incorporated as an exempted Bermuda limited liability company on November 14, 2001. The Company, through its operating subsidiaries and affiliates in Bermuda, the U.S., the United Kingdom (the “U.K.”) and Switzerland, provides customized and innovative reinsurance and insurance solutions to the global market.

 

 The Company’s principal wholly-owned operating subsidiary, Montpelier Reinsurance Ltd. (“Montpelier Re”), is a Bermuda Class 4 insurer. Montpelier Re seeks to identify and underwrite attractive insurance and reinsurance opportunities while utilizing catastrophe modeling software and proprietary risk pricing and capital allocation models. The Company provides marketing services to Montpelier Re through its wholly-owned subsidiary, Montpelier Marketing Services Limited (“MMSL”), a U.K. company based in London.

 

On July 1, 2007, Montpelier commenced the operations of its Lloyd’s of London (“Lloyd’s”) syndicate known as Montpelier Syndicate 5151 (“Syndicate 5151”). Syndicate 5151 underwrites primarily short-tail lines, mainly property insurance and reinsurance, engineering and a limited amount of specialty casualty classes sourced from the London, U.S. and European markets.  Montpelier Capital Limited (“MCL”), a wholly-owned subsidiary of the Company, serves as Syndicate 5151’s sole corporate member.  Syndicate 5151 is managed by Spectrum Syndicate Management Limited (“Spectrum”), a third-party Lloyd’s Managing Agent based in London.  Syndicate 5151 also accepts business from the Company’s wholly-owned U.S. managing general agent, Montpelier Underwriting Inc. (“MUI”) and its wholly-owned Swiss subsidiary, Montpelier Europa AG (“MEAG”). MUI and MEAG are Lloyd’s Coverholders, meaning that they are authorized to enter into contracts of insurance and/or issue insurance documentation on behalf of Syndicate 5151.  MEAG, whose focus is on markets in Continental Europe and the Middle East, also provides marketing services to Syndicate 5151 and supports Montpelier’s existing regional marketing effort with respect to certain established lines of business.

 

On November 1, 2007, Montpelier acquired General Agents Insurance Company of America, Inc. (“General Agents”), an Oklahoma domiciled stock property and casualty insurance corporation, from GAINSCO, Inc. (“GAINSCO”).  General Agents is an admitted insurer in Oklahoma and is authorized as an excess and surplus lines insurer in 37 additional states.  At the time the acquisition was completed, General Agents had no employees or in force premium. General Agents was renamed Montpelier U.S. Insurance Company (“MUSIC”) shortly after the acquisition. MUSIC underwrites smaller commercial property and casualty risks that do not conform to standard insurance lines.

 

On June 5, 2008, the Company acquired all the outstanding capital shares of Blue Ocean Re Holdings Ltd. (“Blue Ocean”) from Blue Ocean’s minority shareholders (the “Blue Ocean Transaction”) for $30.5 million in cash.  Blue Ocean is a holding company that owns 100% of Blue Ocean Reinsurance Ltd. (“Blue Ocean Re”), a Bermuda Class 3 insurer, which formerly provided property catastrophe retrocessional protection. Blue Ocean Re began its operations in January 2006. During the second half of 2007, it ceased writing business and began returning capital to its shareholders.

 

Immediately prior to the Blue Ocean Transaction,  the Company owned 42.2% of Blue Ocean’s outstanding common shares and, prior to March 31, 2008, the Company owned 33.6% of Blue Ocean’s outstanding preferred shares.  As of the date of the Blue Ocean Transaction, Blue Ocean’s assets consisted primarily of cash and investments and it had no in force reinsurance contracts. The Blue Ocean Transaction resulted in an extraordinary gain of $1.0 million representing the excess of fair value of acquired net assets over the Company’s cost.

 

7



 

Prior to Blue Ocean becoming a wholly-owned subsidiary of the Company, it was considered a “variable interest entity” as defined under Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 46R, entitled “Consolidation of Variable Interest Entities - an interpretation of Accounting Research Bulletin No. 51 as amended.”  In accordance with FIN 46R, Blue Ocean was consolidated into the financial statements of the Company.

 

The Company provides insurance, accounting, finance, advisory and information technology services to its affiliates and to third-parties through various wholly-owned subsidiaries located in the U.S. and the U.K.  The Company provides underwriting support services to its affiliates and to third-parties in the U.K. and Switzerland through its wholly-owned U.K. subsidiary, Montpelier Underwriting Services Limited (“MUSL”). Prior to the Blue Ocean Transaction, the Company  provided Blue Ocean Re with underwriting, risk management, claims management, ceded retrocession agreement management, actuarial and accounting services and received fees for such services.

 

The Company currently operates through four reportable business segments consisting of Montpelier Bermuda, Montpelier Syndicate 5151, MUSIC and Blue Ocean. The Montpelier Bermuda segment includes the operations of Montpelier Re and MMSL, the Montpelier Syndicate 5151 segment includes the operations of MCL, Syndicate 5151, MUSL, MEAG and MUI, the MUSIC segment includes the operations of MUSIC and the Blue Ocean segment includes the operations of Blue Ocean and Blue Ocean Re.

 

Prior to 2008, the Company operated through two reportable segments consisting of Rated Reinsurance and Insurance Business and Collateralized Property Catastrophe Retrocessional Business. The Rated Reinsurance and Insurance Business segment included the operations of the Company and its wholly-owned subsidiaries (including Montpelier Re, Syndicate 5151 and MUSIC) and the Collateralized Property Catastrophe Retrocessional Business segment included the operations of Blue Ocean and Blue Ocean Re.  Prior periods have been re-segmented to conform with the current presentation.

 

The unaudited consolidated financial statements have been prepared in accordance with GAAP for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. This report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, as filed with the Securities and Exchange Commission. In the opinion of management, these interim financial statements include all normally recurring adjustments considered necessary to fairly present the Company’s financial position, results of operations and cash flows. All significant intercompany accounts and transactions have been eliminated in consolidation. These interim financial statements may not be indicative of financial results for the full year. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ materially from those estimates. The major estimates reflected in the Company’s unaudited consolidated financial statements include, but are not limited to, loss and loss adjustment expense reserves, reinsurance recoverable on unpaid losses, estimates of written and earned premiums and share-based compensation.

 

Foreign Currency Exchange

 

The U.S. dollar is the Company’s reporting currency.  The British pound is the functional currency for the operations of Syndicate 5151, MCL, MUSL and MMSL and the Swiss franc is the functional currency for the operations of MEAG. The assets and liabilities of these foreign operations are converted to U.S. dollars at exchange rates in effect at the balance sheet date, and the related revenues and expenses are converted using average exchange rates for the period. Net foreign exchange gains and losses arising from translating these foreign operations to U.S. dollars are reported as a separate component of shareholders’ equity, with changes therein reported as a component of other comprehensive income.

 

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Table of Contents

 

 

The following rates of exchange to the U.S. dollar were used to translate the results of Syndicate 5151, the Company’s most significant foreign operation.

 

Currency

 

Opening Rate
January 1, 2008

 

Closing Rate
March 31, 2008

 

Closing Rate
June 30, 2008

 

British Pound (GBP)

 

1.9843

 

1.9837

 

1.9923

 

 

Other transactions involving certain monetary assets and liabilities denominated in foreign currencies have been translated into U.S. dollars at exchange rates in effect at the balance sheet date, and the related revenues and expenses are converted using either specific or average exchange rates for the period, as appropriate.  Net foreign exchange gains and losses arising from these activities are reported as a component of net income in the period in which they arise.

 

Investments and Cash

 

Investments are recorded on a trade date basis. Gains and losses on sales of investments are determined on the first-in, first-out basis and are included in income when realized.  The fair value of the investment portfolio is determined based on bid prices (as opposed to the ask prices) which are not adjusted for transaction costs.

 

Other investments are carried at either fair value or on the equity method of accounting (which is based on underlying net asset values) and consist primarily of investments in limited partnership interests and private investment funds, event-linked securities (“CAT Bonds”), private placements and certain derivative instruments.  See Notes 4 and 6.

 

Net investment income is stated net of investment management, custody and other investment-related expenses. Investment income is recognized when earned and includes interest and dividend income together with the amortization of premiums and the accretion of discounts on fixed maturities purchased at amounts different from their par value.

 

Cash and cash equivalents include cash and fixed income investments with maturities of less than three months, as measured from the date of purchase. Restricted cash consists of funds at Lloyd’s required as security to support Syndicate 5151’s underwriting business and, prior to June 30, 2008, consisted of funds used to collateralize Blue Ocean Re’s trust funds.

 

Montpelier’s letter of credit facilities are secured by investments and cash. See Note 5.

 

Montpelier participates in a securities lending program whereby certain of its fixed maturity investments are loaned to other institutions for short periods of time through a lending agent.  Montpelier receives a fee from the borrower for the temporary use of its securities. Montpelier had $69.9 million and $189.3 million in securities on loan at June 30, 2008 and December 31, 2007, respectively.

 

Montpelier maintains control over the securities it lends, retains the earnings and cash flows associated with the loaned securities and receives a fee from the borrower for the temporary use of the securities. Collateral in the form of cash, government securities and letters of credit is required at a rate of 102% of the market value of the loaned securities and is monitored and maintained by the lending agent.

 

Montpelier may reinvest some or all of the collateral received from the borrower in order to achieve a greater investment return.  In so doing, Montpelier retains the investment risk associated with the reinvested collateral. As of June 30, 2008 and December 31, 2007, Montpelier’s securities on loan were supported by collateral, held by a third-party in the form of cash, government securities and letters of credit, totaling $71.1 million and $192.0 million, respectively, of which $71.7 million and $193.4 million, respectively, was due back to the counterparties at such dates. As of June 30, 2008 and December 31, 2007, Montpelier had experienced unrealized losses on its securities lending collateral invested of $0.6 million and $1.4 million, respectively.

 

Funds Withheld

 

Funds withheld represent insurance balances retained by ceding companies in accordance with contractual terms. Montpelier typically earns investment income on these balances during the period the funds are held.  At June 30, 2008 and December 31, 2007, funds withheld balances of $2.8 million and $3.3 million, respectively, were recorded within other assets on the Company’s consolidated balance sheets.

 

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Table of Contents

 

 

Minority Interest

 

On June 5, 2008, the Company acquired all the outstanding capital shares of Blue Ocean.  Prior to Blue Ocean becoming a wholly-owned subsidiary of the Company, the portion of Blue Ocean’s equity not owned by the Company was considered to be owned by Blue Ocean’s minority shareholders. The minority interest liability in the Company’s consolidated balance sheets represents the equity of the minority shareholders of Blue Ocean and the minority interest expense in the Company’s consolidated statements of operation represents the portion of income attributable to such minority shareholders.

 

Recent Accounting Pronouncements

 

On March 19, 2008, the FASB issued Statement (“FAS”) No. 161, entitled “Disclosures about Derivative Instruments and Hedging Activities an amendment of FASB Statement No. 133.”  The statement is effective for fiscal years beginning after November 15, 2008.  FAS 161 amends and enhances the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about: (i) how and why the entity uses derivative instruments; (ii) how derivative instruments and related hedged items are accounted for; and (iii) how derivative instruments and related hedged items affect the entity’s financial position, financial performance, and cash flows. The adoption of FAS 161 will have no impact on the Company’s operations or financial condition but is expected to change the Company’s current disclosures regarding its derivative instruments.

 

On June 16, 2008, the FASB issued Staff Position EITF 03-6-1 (“FSP EITF 03-6-1”), entitled “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008 and addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method described in FAS 128, entitled “Earnings per Share.”  The requirements of FSP EITF 03-6-1 will not materially impact the Company’s determination of earnings per share.

 

2.  Loss and Loss Adjustment Expense Reserves

 

   The following table summarizes Montpelier’s loss and loss adjustment expense (“LAE”) reserve activities for the three and six months ended June 30, 2008 and 2007:

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2008

 

2007

 

2008

 

2007

 

Gross unpaid loss and LAE reserves - beginning

 

$

846.7

 

$

1,005.5

 

$

860.7

 

$

1,089.2

 

Reinsurance recoverable on unpaid losses - beginning

 

(139.3

)

(183.7

)

(152.5

)

(197.3

)

Net unpaid loss and LAE reserves - beginning

 

707.4

 

821.8

 

708.2

 

891.9

 

 

 

 

 

 

 

 

 

 

 

Losses and LAE incurred:

 

 

 

 

 

 

 

 

 

Current year losses

 

52.2

 

69.8

 

149.6

 

137.5

 

Prior year losses

 

(27.8

)

(19.6

)

(48.8

)

(27.7

)

Total losses and LAE incurred

 

24.4

 

50.2

 

100.8

 

109.8

 

 

 

 

 

 

 

 

 

 

 

Losses and LAE paid:

 

 

 

 

 

 

 

 

 

Current year losses

 

(2.3

)

(5.3

)

(3.2

)

(5.9

)

Prior year losses

 

(31.7

)

(71.1

)

(108.0

)

(200.2

)

Total losses and LAE paid

 

(34.0

)

(76.4

)

(111.2

)

(206.1

)

 

 

 

 

 

 

 

 

 

 

Net unpaid loss and LAE reserves - ending

 

697.8

 

795.6

 

697.8

 

795.6

 

Reinsurance recoverable on unpaid losses - ending

 

130.4

 

162.7

 

130.4

 

162.7

 

Gross unpaid loss and LAE reserves - ending

 

$

828.2

 

$

958.3

 

$

828.2

 

$

958.3

 

 

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Table of Contents

 

 

Loss and LAE development – three and six months ended June 30, 2008

 

The net favorable development during the three and six months ended June 30, 2008, for losses incurred during prior years, primarily resulted from the following:

 

·                          Net estimated ultimate Property Catastrophe losses for prior years decreased by $13.3 million and $32.8 million during the three and six month periods, respectively. The majority of the favorable development related to 2004 and 2005 hurricane and 2007 U.K. flood losses, as projected losses related to these events decreased from prior estimates. The Property Catastrophe line was also favorably impacted by an $8.0 million subrogation recovery during the current quarter from a claim previously paid, of which $5.0 million was recorded within  the Property Catastrophe line and $3.0 million was recorded within the Property Specialty line.  In addition, the six month result includes favorable development from 2007 California wildfires and from 2007 European windstorm Kyrill, the majority of which was recognized during the first quarter of 2008.

 

·                          Net estimated ultimate Property Specialty losses for prior years decreased by $13.7 million and $8.7 million during the three and six month periods, respectively, as reductions in several large reported claims in the current quarter more than offset a $4.9 million prior year increase recorded in the first quarter of 2008.

 

·                          Net estimated ultimate Other Specialty losses for prior years decreased by $0.8 million and $7.3 million during the three and six month periods. The favorable development related to many classes of business within the Other Specialty line, none of which was individually significant.

 

The net favorable development during the three and six months ended June 30, 2007, for losses incurred during prior years, primarily resulted from the following:

 

·                        Net estimated ultimate Property Catastrophe losses for prior years decreased by $5.8 million and $3.3 million during the three and six month periods, respectively, due mainly to decreases in projected losses for 2005 hurricanes Katrina, Rita and Wilma, as well as some smaller events such as U.S. tornadoes.

 

·                        Net estimated ultimate Property Specialty losses for prior years decreased by $11.4 million and $22.0 million during the three and six month periods, respectively, primarily as a result of claims emergence on the direct and facultative book of business being lower than expected and lower than expected ultimate losses on proportional business. A significant portion of the Property Specialty development recognized during the second quarter  was a $5.8 million reduction in losses relating to a fire claim that was settled for less than the reserve previously established.

 

·                        Net estimated ultimate Other Specialty losses for prior years decreased by $2.4 million during the three and six months periods. The favorable development related to many classes of business within the Other Specialty line, none of which was individually significant.

 

3.  Ceded Reinsurance with Third-Parties

 

In the normal course of business, Montpelier purchases reinsurance from third-parties in order to manage its exposures.  All of Montpelier’s reinsurance purchases to-date have represented prospective cover, meaning that the coverage has been purchased to protect Montpelier against the risk of future losses as opposed to covering losses that have already occurred but have not been paid. The majority of these contracts are excess of loss contracts covering one or more lines of business. To a lesser extent, Montpelier has also purchased quota share reinsurance with respect to specific lines of business.

 

Montpelier remains liable to the extent that any third-party reinsurer or other obligor fails to meet its obligations and with respect to certain contracts that carry underlying reinsurance protection, Montpelier would be liable in the event that the ceding companies are unable to collect amounts due from underlying third-party reinsurers.

 

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Table of Contents

 

 

Montpelier records provisions for uncollectible reinsurance recoverable when collection becomes unlikely due to the reinsurer’s inability to pay. Under Montpelier’s reinsurance security policy, reinsurers are generally required to be rated A- or better by A.M. Best at the time the policy is written. Montpelier considers reinsurers that are not rated or do not fall within the above rating threshold on a case-by-case basis when collateralized up to policy limits, net of any premiums owed. Montpelier monitors the financial condition and ratings of its reinsurers on an ongoing basis.  Montpelier does not believe that there are any amounts uncollectible from its reinsurers at this time.

 

Earned reinsurance premiums ceded were $18.2 million and $33.6 million for the three months ended June 30, 2008 and 2007, respectively, and $37.4 million and $65.6 million for the six months ended June 30, 2008 and 2007, respectively.  Total recoveries included in loss and LAE were $3.1 million and $(.8) million for the three months ended June 30, 2008 and 2007, respectively, and $16.6 million and $6.0 million for the six months ended June 30, 2008 and 2007, respectively.  In addition to loss recoveries, certain of Montpelier’s ceded reinsurance contracts provide for recoveries of additional premiums, reinstatement premiums and for lost no-claims bonuses, which are incurred when losses are ceded to these reinsurance contracts.

 

As of June 30, 2008, MUSIC had gross loss and LAE reserves relating to business underwritten prior to the MUSIC acquisition of $16.4 million (the “Acquired Reserves”). In support of the Acquired Reserves, MUSIC held a trust deposit maintained by GAINSCO (which totaled $11.8 million) and reinsurance recoverable from third-party reinsurers rated A- or better, in a combined amount exceeding $16.4 million.  In addition, Montpelier has received a full indemnification from GAINSCO covering any adverse development from its past business. If the Acquired Reserves were to develop unfavorably during future periods and the various protective arrangements, including GAINSCO’s indemnification, ultimately proved to be insufficient, these liabilities would become Montpelier’s responsibility.

 

The current A.M. Best ratings of Montpelier’s reinsurers related to its reinsurance recoverable on paid losses at June 30, 2008, are as follows:

 

Rating

 

Amount

 

% of Total

 

A++

 

$

23.1

 

68

%

A+

 

0.4

 

1

 

A

 

6.1

 

18

 

A-

 

4.7

 

13

 

Total reinsurance recoverable on paid losses

 

$

34.3

 

100

%

 

The current A.M. Best ratings of Montpelier’s reinsurers related to its reinsurance recoverable on unpaid losses at June 30, 2008, are as follows:

 

Rating

 

Amount

 

% of Total

 

A++

 

$

39.2

 

30

%

A+

 

18.3

 

14

 

A

 

43.1

 

33

 

A-

 

13.4

 

10

 

Recoverable under MUSIC’s protective arrangements

 

16.4

 

13

 

Total reinsurance recoverable on unpaid losses

 

$

130.4

 

100

%

 

Montpelier is subject to litigation and arbitration proceedings in the normal course of its business.  Such proceedings generally involve reinsurance contract disputes which are typical for the property and casualty insurance and reinsurance industry in general and are considered in connection with the Company’s net unpaid loss and LAE reserves.

 

12



 

On October 17, 2007, following the failure of contractually-mandated mediation, Montpelier received a notice of arbitration from Manufacturers Property and Casualty Limited (“MPCL”), a subsidiary of Manulife Financial Corporation of Toronto, Canada.  The notice involves two contracts pursuant to which Montpelier purchased reinsurance protection from MPCL (the “Disputed Contracts”).  Although the grounds for relief are not stated in the notice, MPCL seeks thereby to rescind, in whole or in part, the Disputed Contracts, and seeks further relief, including but not limited to attorney’s fees, interest, costs and bad faith damages.

 

Subject to purported reservation of rights, MPCL has to-date paid to Montpelier $25.0 million in respect of ceded claims under the Disputed Contracts, which is net of deposit, reinstatement and additional premiums.

 

In the event that MPCL is awarded rescission of the Disputed Contracts, the reduction in total losses expected to be ceded under the Disputed Contracts, net of reinsurance premiums earned and accrued, would total $73.0 million.

 

Montpelier believes that MPCL’s case is without merit and that the Disputed Contracts are fully enforceable. In addition, Montpelier intends to seek relief from MPCL for its attorney’s fees, interest costs and bad faith damages.  In the circumstances, Montpelier believes that the results of the arbitration will not have a materially adverse effect on its financial condition, results of operations or cash flows.

 

The substantive hearings in the arbitration are expected to commence during the third quarter of 2008.

 

4.  Investments

 

Fixed Maturity Investments and Equity Securities

 

On January 1, 2007, the Company adopted FAS 157, entitled “Fair Value Measurements” and FAS 159, entitled “The Fair Value Option for Financial Assets and Financial Liabilities.” As a result, all of Montpelier’s fixed maturity investments and equity securities are carried at fair value, with the net unrealized appreciation or depreciation on such securities reported within net realized and unrealized gains (losses) in the Company’s statement of operations. Prior to the adoption of FAS 157 and FAS 159, a significant portion of Montpelier’s fixed maturity investments and equity securities were carried at fair value and classified as available-for-sale. As a result, net unrealized appreciation or depreciation on such securities were reported as a separate component of shareholders’ equity, with changes therein reported as a component of other comprehensive income.  In connection with the January 1, 2007 adoption of FAS 157 and 159, the Company recorded a cumulative-effect adjustment of $45.5 million among its retained deficit and accumulated other comprehensive income on the consolidated balance sheet.

 

The table below shows the aggregate cost (or amortized cost) and fair value of Montpelier’s fixed maturity investments and equity securities, by investment type, as of the periods indicated:

 

 

 

As of June 30, 2008

 

 

 

Amortized
Cost

 

Fair
Value

 

Fixed maturity investments

 

 

 

 

 

Mortgage-backed and asset-backed securities

 

$

606.5

 

$

595.9

 

Corporate debt securities

 

446.5

 

436.8

 

U.S. government securities

 

330.4

 

332.5

 

U.S. government-sponsored enterprise securities

 

204.9

 

206.3

 

Other fixed maturity investments

 

15.1

 

15.0

 

Total fixed maturity investments

 

$

1,603.4

 

$

1,586.5

 

 

 

 

Cost

 

Fair
Value

 

Equity securities

 

$

212.4

 

$

224.4

 

 

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Table of Contents

 

 

 

 

As of December 31, 2007

 

 

 

Amortized
Cost

 

Fair
Value

 

Fixed maturity investments

 

 

 

 

 

Mortgage-backed and asset-backed securities

 

$

787.6

 

$

790.2

 

Corporate debt securities

 

593.3

 

600.9

 

U.S. government securities

 

248.2

 

251.4

 

U.S. government-sponsored enterprise securities

 

403.6

 

406.7

 

Other fixed maturity investments

 

11.6

 

12.3

 

Total fixed maturity investments

 

$

2,044.3

 

$

2,061.5

 

 

 

 

Cost

 

Fair
Value

 

Equity securities

 

$

184.4

 

$

220.2

 

 

Other Investments

 

Montpelier’s investments in limited partnership interests and private investment funds are carried at their underlying net asset value and Montpelier’s CAT Bonds, private placement and derivative instruments are carried at fair value.  The table below shows the aggregate cost and carrying value of Montpelier’s other investments, by investment type, as of the dates indicated:

 

 

 

June 30, 2008

 

December 31, 2007

 

 

 

Cost

 

Carrying
Value

 

Cost

 

Carrying
Value

 

Other investments carried at net asset value

 

 

 

 

 

 

 

 

 

Limited partnership interests and private investment funds

 

$

106.5

 

$

97.4

 

$

56.4

 

$

55.5

 

 

 

 

 

 

 

 

 

 

 

Other investments carried at fair value

 

 

 

 

 

 

 

 

 

CAT Bonds

 

$

71.5

 

$

71.4

 

$

 

$

 

Private placement (Symetra)

 

20.0

 

20.1

 

20.0

 

22.3

 

Derivative instruments

 

1.7

 

2.3

 

 

(0.1

)

Total other investments carried at fair value

 

$

93.2

 

$

93.8

 

$

20.0

 

$

22.2

 

 

 

 

 

 

 

 

 

 

 

Total other investments

 

$

199.7

 

$

191.2

 

$

76.4

 

$

77.7

 

 

Montpelier’s limited partnership and private investment fund income and the net appreciation or depreciation on CAT Bonds is reported as net realized and unrealized gains (losses) in the Company’s statements of operations. The net appreciation or depreciation on Montpelier’s derivative instruments is reported as net revenue (expense) from derivative instruments in the Company’s statements of operations.

 

Montpelier’s investment in the common stock of Symetra Financial Corporation (“Symetra”) represents a private placement investment acquired in 2004. The net appreciation or depreciation on Symetra is reported as a separate component of shareholders’ equity, with changes therein reported as a component of other comprehensive income.  Symetra is routinely reviewed to determine if it has sustained an impairment in value that is considered to be other than temporary. Montpelier did not recognize any impairment on its investment in Symetra during the periods presented herein.

 

In May 2008, Montpelier purchased the CAT Bonds underlying its former CAT Bond Facility for $71.5 million.  See Note 6. CAT Bonds are debt instruments whose principal and interest are forgiven if specified trigger events occur.

 

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Table of Contents

 

 

Fair Value Hierarchy

 

FAS 157 establishes a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into the three broad levels described below. The level in the hierarchy within which a given fair value measurement falls is determined based on the lowest level input that is significant to the measurement.

 

·      Level 1 inputs - unadjusted, quoted prices in active markets for identical assets or liabilities.

 

·      Level 2 inputs - information other than quoted prices included within Level 1 that is observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and observable inputs other than quoted prices, such as interest rates and yield curves.

 

·      Level 3 inputs - unobservable inputs.

 

In accordance with FAS 157, the valuation techniques used by the Company and its pricing services maximize the use of observable inputs; unobservable inputs are used to measure fair value only to the extent that observable inputs are unavailable. Values for U.S. Treasury and publicly-traded equity securities are generally based on Level 1 inputs which use the market approach valuation technique. The values for other fixed maturity investments, including mortgage-backed and asset-backed securities, corporate debt securities and U.S. government-sponsored enterprise securities, generally incorporate significant Level 2 inputs, and in some cases, Level 3 inputs, using the market approach and income approach valuation techniques.  There have been no changes in the Company’s use of valuation techniques since its adoption of FAS 157.

 

The following table presents Montpelier’s investment portfolio, categorized by the level within the FAS 157 hierarchy in which the fair value measurements fall, at June 30, 2008 and December 31, 2007.

 

 

 

June 30, 2008

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total Fair
Value

 

Fixed maturity investments

 

$

218.4

 

$

1,183.3

 

$

184.8

 

$

1,586.5

 

Equity securities

 

220.0

 

 

4.4

 

224.4

 

Other investments

 

 

73.7

 

20.1

 

93.8

 

Total investments

 

$

438.4

 

$

1,257.0

 

$

209.3

 

$

1,904.7

 

 

 

 

December 31, 2007

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total Fair
Value

 

Fixed maturity investments

 

$

240.2

 

$

1,628.3

 

$

193.0

 

$

2,061.5

 

Equity securities

 

220.2

 

 

 

220.2

 

Other investments

 

 

(0.1

)

22.3

 

22.2

 

Total investments

 

$

460.4

 

$

1,628.2

 

$

215.3

 

$

2,303.9

 

 

Investments classified as Level 3 at such dates primarily consisted of the following: (i) with respect to fixed maturity investments, certain corporate bonds, convertible debt and asset-backed securities, many of which are not publicly traded or are not actively traded; (ii) with respect to equity securities, warrants to acquire equity securities and certain non-U.S. equity securities; and (iii) with respect to other investments, Montpelier’s investment in Symetra.

 

15



Table of Contents

 

 

The following table presents the securities lending collateral reinvested by Montpelier in connection with its securities lending program, categorized by the level within the FAS 157 hierarchy in which the fair value measurements fall, at June 30, 2008 and December 31, 2007.

 

 

 

June 30, 2008

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total Fair
Value

 

Securities lending collateral reinvested

 

$

12.9

 

$

22.5

 

$

35.7

 

$

71.1

 

 

 

 

December 31, 2007

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total Fair
Value

 

Securities lending collateral reinvested

 

$

61.9

 

$

30.4

 

$

99.7

 

$

192.0

 

 

The securities lending collateral reinvested classified as Level 3 at such dates represented several types of debt instruments, including certificates of deposit and commercial paper.

 

As of June, 2008 and December 31, 2007, the Company’s total Level 3 assets represented 12.4% and 12.6% of its total assets measured at fair value, respectively.

 

The following table presents a reconciliation of the beginning and ending balances for all investments measured at fair value on a recurring basis using Level 3 inputs during the three and six months ended June 30, 2008:

 

 

 

Three Months Ended June 30, 2008

 

 

 

Fixed
Maturity
Investments

 

Equity
Securities

 

Other
Investments

 

Securities
Lending
Collateral

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 3 investments as of March 31, 2008

 

$

104.4

 

$

0.5

 

$

20.1

 

$

40.7

 

$

165.7

 

Net payments, purchases and sales

 

81.6

 

3.9

 

 

(5.0

)

80.5

 

Realized losses

 

(0.1

)

 

 

 

(0.1

)

Unrealized gains (losses)

 

0.1

 

(0.2

)

 

 

(0.1

)

Net transfers in (out)

 

(1.2

)

0.2

 

 

 

(1.0

)

Level 3 investments as of June 30, 2008

 

$

184.8

 

$

4.4

 

$

20.1

 

$

35.7

 

$

245.0

 

 

 

 

Six Months Ended June 30, 2008

 

 

 

Fixed
Maturity
Investments

 

Equity
Securities

 

Other
Investments

 

Securities
Lending
Collateral

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Level 3 investments as of January 1, 2008

 

$

193.0

 

$

 

$

22.3

 

$

99.7

 

$

315.0

 

Net payments, purchases and sales

 

41.6

 

3.9

 

(1.0

)

(94.0

)

(49.5

)

Realized gains (losses)

 

1.2

 

 

0.9

 

(1.0

)

1.1

 

Unrealized losses

 

(10.7

)

(0.2

)

(2.1

)

 

(13.0

)

Net transfers in (out)

 

(40.3

)

0.7

 

 

31.0

 

(8.6

)

Level 3 investments as of June 30, 2008

 

$

184.8

 

$

4.4

 

$

20.1

 

$

35.7

 

$

245.0

 

 

16



Table of Contents

 

Changes in Fair Value

 

Changes in the carrying value of Montpelier’s investment portfolio for the three and six months ended June 30, 2008 and 2007, consisted of the following:

 

 

 

Changes in Carrying Value for the Three Months Ended June 30, 2008

 

 

 

Net Realized
Gains (Losses)
on Investments

 

Net Unrealized
Gains (Losses)
on Investments

 

Net Foreign
Exchange Gains
and Derivative
Revenue From
Investments

 

Total Changes
in Carrying
Value Reflected
in Earnings

 

Changes in
Carrying Value
Reflected in
Other
Comprehensive
Income

 

Fixed maturity investments

 

$

(10.4

)

$

(6.9

)

$

 

$

(17.3

)

$

 

Equity securities

 

3.5

 

(5.1

)

(1.4

)

(3.0

)

 

Other investments

 

 

2.3

 

0.7

 

3.0

 

 

Securities lending

 

(0.1

)

0.2

 

 

0.1

 

 

 

 

 

Changes in Carrying Value for the Six Months Ended June 30, 2008

 

 

 

Net Realized
Gains (Losses)
on Investments

 

Net Unrealized
Gains (Losses)
on Investments

 

Net Foreign
Exchange Gains
and Derivative
Revenue From
Investments

 

Total Changes
in Carrying
Value Reflected
in Earnings

 

Changes in
Carrying Value
Reflected in
Other
Comprehensive
Income

 

Fixed maturity investments

 

$

(2.8

)

$

(28.2

)

$

1.3

 

$

(29.7

)

$

 

Equity securities

 

8.9

 

(25.4

)

2.3

 

(14.2

)

 

Other investments

 

 

(8.4

)

4.3

 

(4.1

)

(2.1

)

Securities lending

 

(1.1

)

0.8