Monday, January 21, 2008 0 comments ++[ CLICK TO COMMENT ]++

Montpelier Re Thought: Reinsurance Pricing Likely Weak

A few weeks ago, the Wall Street Journal supposedly (I don't have access to it) speculated that Berkshire Hathaway's stock was down because reinsurance pricing was weak (here is a link to the CNBC reference to the article).

It blames "a soft market in one of (Berkshire's) core businesses -- reinsurance." Writer Liam Pleven says prices are "weakening quickly" on property-catastrophe reinsurance policies as they come up for their annual renewals around this time of year. Marsh & McLennan's reinsurance-brokerage unit reports an average decline of 9 percent for January 1 renewals...

A shift away from reinsurance, says the Journal, could hurt Berkshire's profits this year, although "it might not have to payout as much if a big storm does hit this year."


Although Montpelier Re (MRH), one of my holdings, is not quite the same as Berkshire Hathaway or Marsh & McLennan, the pricing trends are likely the same. MRH will likely see weaker revenue over the next year. MRH's earnings call is scheduled for mid-February and I'm curious to see what their thoughts are for the last quarter and upcoming year. None of this is a surprise given that we had a benign hurricane season. Like most insurers, declining premiums is not necessarily a bad thing since losses are likely lower as well.

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