MRH: my first buy on margin.
April 10, 2007 – 7:21 pmIf you're new here, I suggest you subscribe to my RSS feed. or bookmark this blog. You'll be able to easily keep up to date with new posts. Thanks for visiting!
Montpelier Re (MRH) is a reinsurance company that was hit hard by the aftermath of hurricane Katrina. In 2006, the year following Katrina, was a favorable for reinsurance companies in that there was little to no hurricane activity. However, investing in MRH isn’t about betting on the weather at all. Selling insurance is about pooling of risks in a ratio that is favorable to the insurer. I don’t think any insurer had a model that predicted a catastrophic event like that of Katrina. However, MRH is lessening their exposure to high risk areas and has built book value considerably in 2006 even with less net premiums. Ultimately I think hurricane scares are depressing the price of the stock which historically trades for 1.4 times book value. Currently MRH trades for about 1.1 to 1.2 book value.
So why did I decide to pull the trigger on MRH? I see a lot of value. I already got in last year around $16.78 or so and I think the upcoming earnings report on April 25th should mitigate a lot of fears about the reinsurance environment MRH operates in. Currently I’m being charged 10% interest on my margin loan so MRH will have to increase in price at least 10% for me to break even. After the earnings report on the 25th I’ll make a decision on whether to hold the stock long or short term.
Note: These are my personal reasons for investing in MRH. Do your own research before investing in any investment.
