Gross premiums written by Montpelier Bermuda during 2013 totaled $429.4 million, a decrease of $51.1 million, or 11%, as compared to 2012. This decrease was largely the result of pricing reductions in the Property Catastrophe - Treaty line of business, which led to decreased premiums on certain renewed contracts. Also contributing to the decrease in Property Catastrophe - Treaty gross premiums written was a reduction in reinstatement premiums written in 2013 versus those written in 2012, due to the low level of catastrophe losses experienced in 2013.
Reinsurance premiums ceded by Montpelier Bermuda in 2014, 2013 and 2012 were $102.1 million, $75.8 million and $99.8 million, respectively. Over the past few years, Montpelier Bermuda has established several underwriting partnerships (in the form of property catastrophe quota share reinsurance treaties) with various third parties and affiliates. These underwriting partnerships allow Montpelier Bermuda to: (i) write larger property catastrophe lines with preferred clients; (ii) recover a portion of its losses from events of all sizes, not just from those events that exceed a specified loss amount; and (iii) reduce its net acquisition costs. The increases in Montpelier Bermuda’s reinsurance premiums ceded from 2012 to 2014 was primarily the result of more Property Catastrophe - Treaty business being ceded on a pro-rata basis, both to third-parties and the Company’s Collateralized Reinsurance segment.
In addition, claims reported to Montpelier Bermuda during 2014 indicated that IBNR for natural catastrophe losses initially recorded during 2013 (excluding the U.S. crop losses noted above) exceeded the extent of losses that actually occurred, and consequently Montpelier decreased its loss and LAE reserves by $21.6 million.
During 2013 Montpelier at Lloyd’s experienced $39.1 million in net favorable development on prior year loss and LAE reserves, which included loss reserve movements associated with:·
The gross and net premium eliminations associated with inter-segment reinsurance arrangements follow:
In May 2014 the BCGR Listed Fund entered into a 364-day unsecured credit agreement (the “BCGR Credit Agreement”) which permits it to borrow up to $20.0 million on a revolving basis for working capital and general corporate purposes. Borrowings under the BCGR Credit Agreement bear interest, set at the time of the borrowing, at a rate equal to the 3-month LIBOR rate plus 100 basis points.
Favorable development of prior period net losses experienced as a percentage of our opening net loss reserves across all underwriting years was 18.6%, 14.3% and 8.7% for the years ended December 31, 2014, 2013 and 2012, respectively. As of December 31, 2014, we estimate that a 15% change in our net unpaid loss and LAE reserves would result in an increase or decrease in our net income or loss and shareholders’ equity of approximately $109.1 million. The net income or loss and shareholders’ equity impact of the change in net reserves might be partially offset by adjustments to items such as reinstatement premiums, profit commission expense, incentive compensation and income taxes.
We regularly evaluate the appropriateness of these premium estimates based on the latest information available, which includes actual reported premiums to date, the latest premium estimates as provided by cedants and brokers, historical experience, management’s professional judgment, information obtained during the underwriting renewal process and a continuing assessment of relevant economic conditions. Any adjustments to premium estimates are recorded in the period in which they become known. Adjustments to original premium estimates could be material and may significantly impact earnings in the period they are determined.