Bermuda-based reinsurer Montpelier Re Holdings Ltd. announced that it has entered into an agreement to sell 25,850,926 common shares to Lehman Brothers Inc.
The share price dropped from around $32 per share before Katrina to around $24 per share currently. Although Lehman’s purchase price was not disclosed, and may include a significant discount, the sale would still raise around $600 million in additional capital.
“All shares were offered by the Company and were sold under the Company’s Form S-3 shelf registration statement, which was declared effective on February 23rd, 2004,” said the announcement.
Montpelier Re was one of 10 companies placed on a “Katrina” CreditWatch by Standard & Poor’s (See IJ Website Sept.12). S&P commented that the rating action reflected “the material uncertainty in quantifying the insurance industry’s Katrina loss, for which Montpelier–as a predominantly property reinsurance underwriter with a significant portion of its book in property catastrophe and risk excess lines–is exposed to a level of loss somewhat greater than many of its more diversified peers.”
The rating agency further noted: “Montpelier’s capital adequacy, even after factoring in a major catastrophic event, is considered strong. However, the uncertainty of ultimate Katrina losses, in combination with the ongoing potential for additional catastrophes, raises the possibility that Montpelier’s competitive and financial profile could be adversely affected by an imbalance between its capital base and prospective business opportunities.”
The new capital may well succeed in putting those concerns to rest.