Montpelier Re in Arbitration With Manufacturers Property and Casualty

Montpelier Re Holdings Ltd. said it is in arbitration with Manufacturers Property and Casualty Ltd. over two reinsurance contracts.

In its annual report filed with the U.S. Securities and Exchange Commission on Feb. 27, Montpelier Re said after an attempt at mediation, which was required under its contract, failed, it received notice of arbitration in October 2007 from Manufacturers Property and Casualty, a subsidiary of Toronto-based Manulife Financial Corp.

The notice involves two contracts under which Montpelier purchased reinsurance from Manufacturers Property and Casualty. Manufacturers Property and Casualty is seeking to rescind, in whole or in part, the disputed contracts, and seeks further relief, including but not limited to attorney fees and interest.

Manufacturers Property and Casualty has paid Montpelier $25.5 million in respect of ceded claims under the disputed contracts, which is net of deposit, reinstatement and additional premiums, Montpelier said in its annual report.

In the event that Manufacturers Property and Casualty is awarded rescission of the disputed contracts, the reduction in Montpelier's total losses expected to be ceded under the disputed contracts, net of reinsurance premiums earned and accrued, would total $73 million.

"We believe that MPCL’s case is without merit and that the disputed contracts are fully enforceable," Montpelier said in its annual report. "In addition, we intend to seek relief from MPCL for our attorney fees and interest costs. In the circumstances, we believe that the results of the arbitration will not have a materially adverse effect on our financial condition, results of operations or cash flows."

Montpelier said it did not expect substantive hearings to begin until early 2010.

A spokeswoman for Manulife said the company does not comment on matters in arbitration.

Montpelier Reinsurance Ltd. currently has a Best's Financial Strength Rating of A- (Excellent). Manulife Group's Manufacturers Life Insurance Co. currently has a Best's Financial Strength Rating of A++ (Superior).

(By Meg Green, senior associate editor, BestWeek: [email protected])