Qualifying Quota Share (“QQS”) - This category represents whole account quota share reinsurance to three Lloyd’s syndicates. Under QQS contracts, we assume a specified portion of the risk on a specified coverage in exchange for an equal proportion of the premiums. Gross premiums written related to QQS arrangements have been recorded gross of original commissions to the syndicates. This accounting treatment, when compared to recording such premiums net of original commissions, has the effect of increasing net premiums earned and increasing acquisition costs by an equal amount.
General and administrative expenses consist primarily of salaries, benefits, professional fees and related costs, including costs associated with awards under our bonus plan, performance unit plan and our share option plan. Other than bonuses and performance units, expenses are primarily fixed in nature and do not vary with the amount of premiums written or losses incurred.
We ended the 2003 year with a fully converted book value per share (as defined above) of $24.92, an increase of $5.53 from December 31, 2002. This increase of 28.5% resulted from premium rate levels being relatively high across the major classes that we specialize in, together with a relatively low level of catastrophes affecting our portfolio during the year. On January 15, 2004 we also paid a $0.34 dividend to shareholders of record at December 31, 2003, which results in a total return to shareholders, (as defined below) of $5.87 or 30.3% (1). We also benefited from a positive total return of approximately 4.0% on our investment portfolio for the year ended December 31, 2003.
The variation in loss ratios between the year ended December 31, 2003 compared to the prior year results from the fact that in 2002 we did not have the benefit of prior years’ loss history on which to base our loss
Underwriting expenses consist of acquisition costs (including profit commission) and general and administrative expenses. Acquisition costs and general and administrative expenses were $190.4 million and $89.2 million for the years ended December 31, 2003 and 2002, respectively, representing expense ratios of 27.0% for both years. General and administrative expenses are comprised of fixed expenses which include salaries and benefits, stock options and office and risk management expenses, and variable expenses which
The increase in fixed expenses, excluding stock options between 2003 and 2002 principally relates to an increase in fixed expenses consisting of increased employment costs, premises and office expenses, consistent with the increase in staff numbers. As our business continues to grow we anticipate employing some additional staff during 2004 which will account for a modest increase in fixed expenses. In addition, we also incurred costs related to our debt offering in the amount of $2.1 million and costs related to obtaining additional financial strength and debt ratings from rating agencies during the year. Concurrent with the repayment of our term loan facility during 2003, deferred financing costs of $1.3 million were expensed during the year.
We entered into a Memorandum of Intent and Understanding (“MIU”) on December 17, 2003 to develop a construction project (the “Project”) to build a commercial building with a mixture of office, residential and retail use. We expect to finalize the Construction Loan Agreement and Agreement for Lease during 2004 and obtain consent to hold 20% of the shares of the company which will undertake the Project and own the building. Under the MIU, the terms of the Construction Loan will provide that we loan $19.0 million to the landlord for the costs of the Project upon commencement of construction, which is estimated to commence during the first quarter of
Subject to such laws, the directors of Montpelier Re have the unilateral authority to declare or not to declare dividends to us. There is no assurance that dividends will be declared or paid in the future.