MONTPELIER RE HOLDINGS LTD - FORM 10-Q

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EX-32 - EX-32 - MONTPELIER RE HOLDINGS LTD	a15-7811_1ex32.htm
EX-10.4 - EX-10.4 - MONTPELIER RE HOLDINGS LTD	a15-7811_1ex10d4.htm
EX-10.3 - EX-10.3 - MONTPELIER RE HOLDINGS LTD	a15-7811_1ex10d3.htm
EX-10.1 - EX-10.1 - MONTPELIER RE HOLDINGS LTD	a15-7811_1ex10d1.htm
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EXCEL - IDEA: XBRL DOCUMENT - MONTPELIER RE HOLDINGS LTD	Financial_Report.xls
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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2015

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-31468

Montpelier Re Holdings Ltd.

(Exact Name of Registrant as Specified in Its Charter)

Bermuda

(State or Other Jurisdiction of

Incorporation or Organization)

98-0428969

(I.R.S. Employer

Identification No.)

Montpelier House

94 Pitts Bay Road

Pembroke HM 08

Bermuda

(Address of Principal Executive Offices)

(441) 296-5550

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x		Accelerated filer o
Non-accelerated filer o		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of May 4, 2015, the registrant had 43,799,253 common shares outstanding with a par value of 1/6 cent per share (“Common Shares”).

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MONTPELIER RE HOLDINGS LTD.

INDEX TO FORM 10-Q

		Page

	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	3


	Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014 (Unaudited)	3

	Consolidated Statements of Operations and Comprehensive Income for the Three Month Periods Ended March 31, 2015 and 2014 (Unaudited)	4

	Consolidated Statements of Shareholders’ Equity for the Three Month Periods Ended March 31, 2015 and 2014 (Unaudited)	5

	Consolidated Statements of Cash Flows for the Three Month Periods Ended March 31, 2015 and 2014 (Unaudited)	6

	Notes to Consolidated Financial Statements (Unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	47

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	80

Item 4.	Controls and Procedures	80

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	80

Item 1A.	Risk Factors	80

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	84

Item 3.	Defaults Upon Senior Securities	84

Item 4.	Mine Safety Disclosures	84

Item 5.	Other Information	84

Item 6.	Exhibits	85

SIGNATURES		85

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

MONTPELIER RE HOLDINGS LTD.

CONSOLIDATED BALANCE SHEETS

Unaudited

	March 31,			December 31,
(In millions of U.S. dollars, except share amounts)	2015			2014
Assets
Fixed maturity investments, at fair value (amortized cost: $1,927.0 and $1,902.9)	$	1,938.6		$	1,901.0
Equity securities, at fair value (cost: $178.9 and $163.8)	184.4			173.1
Other investments (cost: $610.2 and $642.4)	606.8			642.0
Total investments	2,729.8			2,716.1
Cash and cash equivalents	616.4			447.7
Restricted cash	4.2			26.6
Reinsurance recoverable on unpaid losses	48.8			48.7
Reinsurance recoverable on paid losses	4.9			7.1
Insurance and reinsurance premiums receivable	253.8			206.5
Unearned reinsurance premiums ceded	50.4			24.0
Deferred insurance and reinsurance acquisition costs	58.2			53.3
Accrued investment income	9.7			11.5
Unsettled sales of investments	183.1			51.1
Other assets	33.6			36.5

Total Assets	$	3,992.9		$	3,629.1
Liabilities
Loss and loss adjustment expense reserves	$	751.4		$	775.7
Debt	403.3			407.3
Unearned insurance and reinsurance premiums	350.3			275.4
Insurance and reinsurance balances payable	67.2			48.0
Investment securities sold short, at fair value	169.3			76.2
Unsettled purchases of investments	240.3			68.8
Accounts payable, accrued expenses and other liabilities	42.2			63.2

Total Liabilities	2,024.0			1,714.6

Commitments and Contingent Liabilities (See Note 10)	—			—

Shareholders’ Equity
Non-cumulative preferred shares (“Preferred Shares”) - issued 6,000,000 shares	150.0			150.0
Common Shares, at par value - issued 45,113,841 shares	0.1			0.1
Additional paid-in capital	742.8			744.4
Common Shares held in treasury at cost; 1,314,588 and 1,494,717 shares	(25.6		)	(31.0		)
Retained earnings	832.1			789.5
Accumulated net foreign currency translation losses	(6.3		)	(4.8		)

Total Shareholders’ Equity available to the Company	1,693.1			1,648.2

Non-controlling interests	275.8			266.3

Total Shareholders’ Equity	1,968.9			1,914.5

Total Liabilities and Shareholders’ Equity	$	3,992.9		$	3,629.1

See Notes to Consolidated Financial Statements

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MONTPELIER RE HOLDINGS LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

Unaudited

	Three Month Periods Ended
	March 31,
(In millions of U.S. dollars, except per share amounts)	2015			2014
Revenues
Gross insurance and reinsurance premiums written	$	253.4		$	273.5
Ceded reinsurance premiums	(48.2		)	(36.4		)

Net insurance and reinsurance premiums written	205.2			237.1
Change in net unearned insurance and reinsurance premiums	(54.5		)	(80.3		)

Net insurance and reinsurance premiums earned	150.7			156.8
Net investment income	9.8			12.9
Net realized and unrealized investment gains	13.8			22.7
Net foreign currency gains (losses)	6.2			(1.8		)
Net loss from derivative instruments	(3.5		)	(5.1		)
Other revenues	1.4			0.3

Total revenues	178.4			185.8
Expenses
Underwriting expenses:
Loss and loss adjustment expenses	47.7			27.4
Insurance and reinsurance acquisition costs	27.6			24.8
General and administrative expenses	28.9			26.8
Non-underwriting expenses:
Interest and other financing expenses	4.7			4.7
Other expenses	4.8			—

Total expenses	113.7			83.7

Income before income taxes	64.7			102.1
Income tax benefit (provision)	(1.0		)	0.1

Net income	63.7			102.2

Net income attributable to non-controlling interests	(8.3		)	(9.0		)

Net income available to the Company	55.4			93.2

Dividends declared on Preferred Shares	(3.3		)	(3.3		)

Net income available to the Company’s common shareholders	$	52.1		$	89.9

Net income	$	63.7		102.2

Change in accumulated net foreign currency translation losses	(1.5		)	0.2

Comprehensive income	62.2			102.4

Net income attributable to non-controlling interests	(8.3		)	(9.0		)

Comprehensive income available to the Company	$	53.9		$	93.4

Basic and diluted earnings per Common Share	$	1.15		$	1.84
Dividends declared per Common Share and RSU	0.20			0.125

See Notes to Consolidated Financial Statements

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MONTPELIER RE HOLDINGS LTD.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Three Month Periods Ended March 31, 2015 and 2014

Unaudited

																	Accum. net
																	foreign
	Total					Common		Additional			Common						currency			Non-
	shareholders’			Preferred		Shares, at		paid-in			Shares held			Retained			translation			controlling
(In millions of U.S. dollars)	equity			Shares		par value		capital			in treasury			earnings			loss			interests

Opening balances at January 1, 2015	$	1,914.5		$	150.0	$	0.1	$	744.4		$	(31.0	)	$	789.5		$	(4.8	)	$	266.3

Net income	63.7			—		—		—			—			55.4			—			8.3
Net change in foreign currency translation	(1.5		)	—		—		—			—			—			(1.5		)	—
Issuances of Common Shares from treasury	—			—		—		(4.9		)	5.4			(0.5		)	—			—
Expense recognized for RSUs	4.8			—		—		4.8			—			—			—			—
RSUs withheld for income taxes	(1.5		)	—		—		(1.5		)	—			—			—			—
Net contributions from non-controlling interests	6.8			—		—		—			—			—			—			6.8
Dividends declared - non-controlling interests	(5.6		)	—		—		—			—			—			—			(5.6		)
Dividends declared - Common Shares and RSUs	(9.0		)	—		—		—			—			(9.0		)	—			—
Dividends declared - Preferred Shares	(3.3		)	—		—		—			—			(3.3		)	—			—

Ending balances at March 31, 2015	$	1,968.9		$	150.0	$	0.1	$	742.8		$	(25.6	)	$	832.1		$	(6.3	)	$	275.8

																	Accum. net
																	foreign
	Total					Common		Additional			Common						currency			Non-
	shareholders’			Preferred		Shares, at		paid-in			Shares held			Retained			translation			controlling
(In millions of U.S. dollars)	equity			Shares		par value		capital			in treasury			earnings			loss			interests

Opening balances at January 1, 2014	$	1,887.0		$	150.0	$	0.1	$	900.5		$	(18.9	)	$	612.8		$	(2.4	)	$	244.9

Net income	102.2			—		—		—			—			93.2			—			9.0
Net change in foreign currency translation	0.2			—		—		—			—			—			0.2			—
Repurchases of Common Shares	(70.3		)	—		—		(66.3		)	(4.0		)	—			—			—
Issuances of Common Shares from treasury	—			—		—		(4.9		)	3.9			1.0			—			—
Expense recognized for RSUs	3.0			—		—		3.0			—			—			—			—
RSUs withheld for income taxes	(1.8		)	—		—		(1.8		)	—			—			—			—
Net contributions from non-controlling interests	0.2			—		—		—			—			—			—			0.2
Dividends declared - non-controlling interests	(1.9		)	—		—		—			—			—			—			(1.9		)
Dividends declared - Common Shares and RSUs	(5.9		)	—		—		—			—			(5.9		)	—			—
Dividends declared - Preferred Shares	(3.3		)	—		—		—			—			(3.3		)	—			—

Ending balances at March 31, 2014	$	1,909.4		$	150.0	$	0.1	$	830.5		$	(19.0	)	$	697.8		$	(2.2	)	$	252.2

See Notes to Consolidated Financial Statements

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MONTPELIER RE HOLDINGS LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

	Three Month Periods Ended
	March 31,
(In millions of U.S. dollars)	2015			2014

Cash flows from operations:
Net income	$	63.7		$	102.2
Charges (credits) to reconcile net income to net cash and cash equivalents provided from operations:
Net realized and unrealized investment gains	(13.8		)	(22.7		)
Net amortization and depreciation of assets and liabilities	2.8			2.9
Expense recognized for RSUs	4.8			3.0
Net change in:
Loss and loss adjustment expense reserves	(7.3		)	(44.6		)
Reinsurance recoverable on paid and unpaid losses	(11.9		)	9.4
Unearned insurance and reinsurance premiums	81.4			95.8
Insurance and reinsurance balances payable	25.5			18.2
Unearned reinsurance premiums ceded	(26.9		)	(15.5		)
Deferred insurance and reinsurance acquisition costs	(6.5		)	(9.7		)
Insurance and reinsurance premiums receivable	(52.0		)	(69.7		)
Other assets	2.6			(0.3		)
Accounts payable, accrued expenses and other liabilities	(18.2		)	(14.5		)
Other	(0.7		)	0.6
Net cash and cash equivalents provided from operations	43.5			55.1

Cash flows from investing activities:
Purchases of fixed maturity investments	(933.1		)	(1,722.7		)
Purchases of equity securities	(230.9		)	(228.6		)
Purchases of other investments	(43.2		)	(325.0		)
Sales, maturities, calls and pay downs of fixed maturity investments	1,029.4			1,739.6
Sales of equity securities	220.9			171.9
Sales and redemptions of other investments	77.1			253.6
Net settlements of investment-related derivative instruments	(1.1		)	(3.9		)
Net investments in reverse repurchase agreements	—			(39.6		)
Net change in restricted cash	22.4			59.3
Payment of accrued investment performance fees	—			(4.1		)
Acquisitions of capitalized assets	(1.8		)	(0.3		)
Net cash and cash equivalents provided from (used for) investing activities	139.7			(99.8		)

Cash flows from financing activities:
Repurchases of Common Shares	—			(66.2		)
Net contributions from non-controlling interests	6.8			—
Net proceeds from repurchase agreements	—			397.4
Repayments of borrowings under the BCRH Credit Agreement	(4.0		)	—
Dividends paid - non-controlling interests	(3.8		)	—
Dividends paid - Common Shares	(8.9		)	(6.2		)
Dividends paid - Preferred Shares	(3.3		)	(3.3		)
Net cash and cash equivalents (used for) provided from financing activities	(13.2		)	321.7

Effect of foreign currency exchange rate fluctuations on cash and cash equivalents	(1.3		)	2.0

Net increase in cash and cash equivalents during the period	168.7			279.0
Cash and cash equivalents - beginning of year	447.7			468.4
Cash and cash equivalents - end of period	$	616.4		$	747.4

See Notes to Consolidated Financial Statements

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MONTPELIER RE HOLDINGS LTD.

Notes To Consolidated Financial Statements

(In millions of U.S. dollars, except share and per

share amounts or as otherwise indicated)

Unaudited

NOTE 1. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

Montpelier Re Holdings Ltd. (the “Company” or the “Registrant”) was incorporated as an exempted Bermuda limited liability company under the laws of Bermuda on November 14, 2001. The Company, through its subsidiaries and affiliates in Bermuda, the United Kingdom (the “U.K.”) and the United States (the “U.S.”), collectively “Montpelier,” provides customized and innovative insurance and reinsurance solutions to the global market. Through its affiliates in Bermuda, the Company provides institutional and retail investors with direct access to the global property catastrophe reinsurance market. The Company’s headquarters and principal executive offices are located at Montpelier House, 94 Pitts Bay Road, Pembroke, Bermuda HM 08.

The unaudited consolidated financial statements incorporated in this report on Form 10-Q have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, including all amendments thereto, (the “2014 Form 10-K”), as filed with the Securities and Exchange Commission (the “SEC”). In the opinion of management, these interim consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to fairly present the Company’s financial position, results of operations and cash flows. All significant intercompany accounts and transactions have been eliminated in consolidation. These interim consolidated financial statements may not be indicative of financial results for the full year. The December 31, 2014 condensed balance sheet data was derived from audited consolidated financial statements, but does not include all of the disclosures required by GAAP.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues earned and expenses incurred during the period. Actual results could differ materially from those estimates. The significant estimates reflected in these interim consolidated financial statements include, but are not limited to, loss and loss adjustment expense (“LAE”) reserves, written and earned insurance and reinsurance premiums, ceded reinsurance and share-based compensation.

Merger Agreement

On March 31, 2015, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Endurance Specialty Holdings Ltd., a Bermuda exempted company (“Endurance”), and Millhill Holdings Ltd., a Bermuda exempted company and wholly-owned subsidiary of Endurance (“Millhill”). Subject to the terms and conditions of the Merger Agreement, the Company will be merged with and into Millhill (the “Merger”), with Millhill surviving the Merger as a wholly-owned subsidiary of Endurance.

Pursuant to the terms of the Merger Agreement, upon the closing of the Merger, shareholders of the Company will be entitled to receive consideration of 0.472 common shares of Endurance and $9.89 in cash per Common Share. The cash portion of the consideration will be funded through a pre-closing dividend to be paid by the Company. Following completion of the transaction, the Company’s existing common shareholders will own approximately 32% of Endurance’s outstanding common shares.

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The Company intends to redeem its Preferred Shares in connection with the Merger for $26.00 per share plus declared and unpaid dividends, if any, to the date of the redemption, in accordance with the Certificate of Designation of the Preferred Shares. See Note 7.

The Merger is subject to the approval of the Company’s and Endurance’s common shareholders, regulatory approvals and other customary closing conditions. There can be no assurance that: (i) all such closing conditions will be satisfied; and (ii) the Merger will ultimately be completed.

Reportable Segments

The Company operates through three reportable segments: Montpelier Bermuda, Montpelier at Lloyd’s and Collateralized Reinsurance. Each of the Company’s segments represents a separate and distinct underwriting platform through which Montpelier conducts insurance and reinsurance business. The Company’s segment disclosures provided herein present the operations of Montpelier Bermuda, Montpelier at Lloyd’s and Collateralized Reinsurance prior to the effects of any inter-segment quota share reinsurance agreements among them. This presentation allows the reader, as well as the Company’s chief operating decision makers, to objectively analyze the business originated through each of the Company’s underwriting platforms, regardless of where such business ultimately resides within Montpelier.

Detailed financial information about the Company’s reportable segments for each of the periods presented herein is presented in Note 8. The activities of the Company, certain intermediate holding and service companies, intercompany eliminations relating to inter-segment reinsurance agreements and support services and the business retained upon the Company’s 2011 sale (the “MUSIC Sale”) of Montpelier U.S. Insurance Company (“MUSIC”) to Selective Insurance Group, Inc. (“Selective”), collectively referred to as “Corporate and Other”, are also presented in Note 8.

The nature and composition of each of the Company’s reportable segments and its Corporate and Other activities is as follows:

Montpelier Bermuda

The Montpelier Bermuda segment consists of the assets and operations of Montpelier Reinsurance Ltd. (“Montpelier Re”).

Montpelier Re, the Company’s wholly-owned operating subsidiary based in Pembroke, Bermuda, is registered as a Bermuda Class 4 insurer. Montpelier Re seeks to identify and underwrite insurance and reinsurance opportunities by combining underwriting experience with proprietary risk pricing and capital allocation models and catastrophe modeling tools. Montpelier Re focuses on writing short-tail U.S. and international catastrophe treaty reinsurance on both an excess-of-loss and proportional basis. Montpelier Re also writes specialty treaty reinsurance, including casualty, accident & health, aviation, space, crop, financial risk, political risk, terrorism and workers’ compensation catastrophe classes of business, as well as insurance and facultative reinsurance business.

Montpelier at Lloyd’s

The Montpelier at Lloyd’s segment consists of the collective assets and operations of Montpelier Syndicate 5151 (“Syndicate 5151”), Montpelier Capital Limited (“MCL”), Montpelier at Lloyd’s Limited (“MAL”), Montpelier Underwriting Services Limited (“MUSL”) and Montpelier Underwriting Inc. (“MUI”).

Syndicate 5151, the Company’s wholly-owned Lloyd’s of London (“Lloyd’s”) syndicate based in London, was established in July 2007. Syndicate 5151 underwrites property insurance and reinsurance, engineering, marine hull and liability, cargo and specie, political & financial risks and specialty casualty classes sourced mainly from the London, U.S. and European markets.

MCL, the Company’s wholly-owned U.K. subsidiary based in London, serves as Syndicate 5151’s corporate underwriting member at Lloyd’s.

MAL, the Company’s wholly-owned Lloyd’s Managing Agent based in London, manages Syndicate 5151.

MUSL, the Company’s wholly-owned U.K. subsidiary based in London, provides support services to Syndicate 5151, MAL and MCL.

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MUI, the Company’s wholly-owned subsidiary based in Chicago, Illinois, serves as a Lloyd’s Coverholder, meaning that it is authorized to enter into insurance and reinsurance contracts and/or issue documentation on behalf of Syndicate 5151. MUI underwrites facultative reinsurance business through managing general agents and intermediaries.

Collateralized Reinsurance

The Collateralized Reinsurance segment, which Montpelier markets under the name Blue Capital_ (Blue Capital is a registered trademark of the Company), was launched in 2012 as an asset management platform offering a range of property catastrophe reinsurance-linked investment products to institutional and retail investors. Blue Capital_ differentiates itself by providing institutional and retail investors with the opportunity to directly invest in global property catastrophe reinsurance risks.

The Collateralized Reinsurance segment consists of the assets and operations of Blue Water Re Ltd. (“Blue Water Re”), Blue Water Master Fund Ltd. (the “Master Fund”), Blue Capital Management Ltd. (“BCML”) and the operating subsidiaries of Blue Capital Reinsurance Holdings Ltd. (“BCRH”).

Blue Water Re is a wholly-owned Bermuda-based special purpose insurance vehicle that provides collateralized property catastrophe reinsurance coverage and related products. Blue Water Re was established in November 2011 and commenced its operations in June 2012.

The Master Fund is an exempted mutual fund segregated accounts company which was incorporated in Bermuda in December 2011. The Master Fund has various segregated accounts, including the BCAP Mid Vol Fund cell (the “Mid Vol Cell”), the Blue Capital Low Volatility Strategy cell (the “Low Vol Cell”) and the Blue Capital Global Reinsurance SA-I cell (the “BCGR Cell”), (collectively, the “Cells”).

The Cells may invest in: (i) fully-collateralized property catastrophe reinsurance contracts by subscribing for non-voting redeemable preference shares issued by Blue Water Re, with each series of such preference shares linked to a specific reinsurance contract with a third-party ceding company; and (ii) various insurance-linked securities issued by entities other than Blue Water Re.

Montpelier Re has been the sole investor in the Mid Vol Cell and the Low Vol Cell since their inception.

BCML is a wholly-owned Bermuda-based subsidiary that provides investment and insurance management services to: (i) Blue Water Re; (ii) the Cells; and (iii) BCRH and its subsidiaries.

BCRH is a Bermuda-based exempted limited liability holding company which provides fully-collateralized property catastrophe reinsurance and invests in various insurance-linked securities through its wholly-owned Bermuda-based subsidiaries Blue Capital Re Ltd. (“Blue Capital Re”) and Blue Capital Re ILS Ltd. (“Blue Capital Re ILS”). The underwriting decisions and operations of BCRH and its subsidiaries are managed by BCML, and each uses Montpelier’s reinsurance underwriting expertise and infrastructure to conduct its business. BCRH commenced its operations in November 2013 pursuant to an initial public offering (the “BCRH IPO”) and its common shares are listed on the New York Stock Exchange, under the symbol BCRH, and the Bermuda Stock Exchange, under the symbol BCRH BH. As of March 31, 2015 and December 31, 2014, Montpelier owned 33.3% of BCRH’s outstanding common shares.

BCRH is considered a “variable interest entity” under GAAP and the Company has determined that it is BCRH’s primary beneficiary. As a result, the Company fully consolidates the assets, liabilities and operations of BCRH and its subsidiaries within its consolidated financial statements and Collateralized Reinsurance segment disclosures. The interests in BCRH and its subsidiaries which are attributable to third-party investors are reported within the Company’s consolidated financial statements as non-controlling interests. See “Non-Controlling Interests” in this Note 1.

Blue Capital Global Reinsurance Fund Limited (the “BCGR Listed Fund”) is a closed-ended mutual fund incorporated in Bermuda that serves as the feeder fund for the BCGR Cell. The BCGR Listed Fund commenced its operations in October 2012 and its ordinary shares are listed on the Specialist Fund Market of the London Stock Exchange, under the symbol BCGR, and on the Bermuda Stock Exchange, under the symbol BCGR.BH. As of March 31, 2015 and December 31, 2014, Montpelier owned 25.1% of the BCGR Listed Fund’s ordinary shares.

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The BCGR Listed Fund is considered a “voting interest entity” under GAAP and, because Montpelier Re owns less than 50% of its outstanding ordinary shares, the Company does not consolidate the BCGR Listed Fund’s assets, liabilities or operations within its consolidated financial statements or Collateralized Reinsurance segment disclosures. However, the BCGR Cell and Blue Water Re are considered variable interest entities under GAAP and the Company has determined that it is the primary beneficiary of these entities. Therefore, as funds held in the BCGR Listed Fund are deployed into the BCGR Cell, and ultimately into Blue Water Re, they are included in the Company’s consolidated financial statements and Collateralized Reinsurance segment disclosures. Conversely, as funds previously deployed by the BCGR Listed Fund and the BCGR Cell into Blue Water Re are returned to the BCGR Listed Fund, they are no longer included in the Company’s consolidated financial statements or its Collateralized Reinsurance segment disclosures.

The interests in the BCGR Cell and Blue Water Re that the Company fully consolidates which are attributable to third- party investors are reported within the Company’s consolidated financial statements as non-controlling interests. See “Non-Controlling Interests” in this Note 1.

Montpelier is entitled to receive management and performance fees from BCRH and the BCGR Listed Fund for the services that it performs for these entities.

Corporate and Other

The Company’s Corporate and Other activities consist of the assets and operations of: (i) the Company and certain of its intermediate holding and service and support companies, including Montpelier Technical Resources Ltd. (“MTR”); (ii) Cladium, Inc. (“Cladium”), a wholly-owned Florida-based managing general agency that was acquired by Montpelier on May 19, 2014; (iii) intercompany eliminations relating to inter-segment reinsurance agreements; and (iv) the business retained upon the MUSIC Sale (“MUSIC Run-Off”).

Insurance and Reinsurance Premiums and Related Costs

Reinsurance contracts can be written on a risks-attaching or losses-occurring basis. Under risks-attaching reinsurance contracts, all claims from cedants’ underlying policies incepting during the contract period are covered, even if they occur after the expiration date of the reinsurance contract. In contrast, losses-occurring reinsurance contracts cover all claims occurring during the period of the contract, regardless of the inception dates of the underlying policies. Any claims occurring after the expiration of the losses-occurring contract are not covered.

Premiums written are recognized as revenues, net of any applicable underlying reinsurance coverage, and are earned over the term of the related policy or contract. For direct insurance and facultative and losses-occurring contracts, the earnings period is the same as the reinsurance contract. For risks-attaching contracts, the earnings period is based on the terms of the underlying insurance policies.

For contracts that have a risk period of three years or less, the premiums are earned ratably over the term. For the few contracts with risk periods greater than three years, premiums are earned in accordance with schedules that reflect the level of risk associated with each period in the contract term. These schedules are reviewed periodically and are adjusted as deemed necessary.

For the majority of Montpelier’s excess-of-loss contracts, written premium is based on the deposit or minimum premium as defined in the contract. Subsequent adjustments, based on reports of actual premium or revisions in estimates by ceding companies, are recorded in the period in which they are determined. For pro-rata contracts and excess-of-loss contracts where no deposit or minimum premium is specified in the contract, written premium is recognized based on estimates of ultimate premiums provided by ceding companies and Montpelier’s underwriters.

Initial estimates of written premium are recognized in the period in which the underlying risks incept. Subsequent adjustments, based on reports of actual premium by the ceding companies, or revisions in estimates, are recorded in the period in which they are determined. Such adjustments are generally determined after the associated risk periods have expired, in which case the premium adjustments are fully earned when written. Unearned premiums represent the portion of premiums written that are applicable to future insurance or reinsurance coverage provided by policies or contracts in force.

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Premiums receivable are recorded at amounts due less any provision for doubtful accounts. As of March 31, 2015 and December 31, 2014, Montpelier’s allowance for doubtful accounts was $3.7 million.

When a reinsurance contract provides for a reinstatement of coverage following a covered loss, the associated reinstatement premium is recorded as both written and earned when Montpelier determines that such a loss event has occurred.

Deferred acquisition costs are comprised of commissions, brokerage costs, premium taxes and excise taxes, each of which relates directly to the writing of insurance and reinsurance contracts. These deferred acquisition costs are typically amortized over the underlying risk period of the related contracts. However, if the sum of a contract’s expected losses and LAE and deferred acquisition costs exceeds related unearned premiums and projected investment income, a premium deficiency is determined to exist. In this event, deferred acquisition costs are immediately expensed to the extent necessary to eliminate the premium deficiency. If the premium deficiency exceeds deferred acquisition costs then a liability is accrued for the excess deficiency. There were no significant premium deficiency adjustments recognized during the periods presented herein.

Profit commissions earned and incurred are included in insurance and reinsurance acquisition costs within the Company’s Consolidated Statements of Operations and Comprehensive Income.

Insurance and Reinsurance Balances Payable

Insurance and reinsurance balances payable consist primarily of reinsurance premiums and reinstatement premiums payable, losses and LAE that have been approved for payment and profit commissions payable.

Foreign Currency Exchange

The U.S. dollar is the Company’s reporting currency and the British pound is the functional currency for the Company’s U.K.- based operations. The U.S. dollar is the functional currency for all other operations. The assets and liabilities of the Company’s U.K. operations are converted to U.S. dollars at exchange rates in effect at the balance sheet date, and the related revenues and expenses are converted using average exchange rates for the period. Net foreign currency gains and losses arising from translating these foreign operations to U.S. dollars are reported as a separate component of shareholders’ equity as translation gains and losses, with changes therein reported as a component of other comprehensive income or loss.

The following rates of exchange to the U.S. dollar were used to translate the results of Montpelier’s U.K. operations:

Currency		Opening Rate January 1, 2015		Closing Rate March 31, 2015		Opening Rate January 1, 2014		Closing Rate March 31, 2014
British Pound (GBP)		1.5559		1.4895		1.6559		1.6665

Other transactions involving certain monetary assets and liabilities denominated in foreign currencies have been converted into the appropriate functional currencies at exchange rates in effect at the balance sheet date, and the related revenues and expenses are converted using either specific or average exchange rates for the period, as appropriate. Net foreign currency transaction gains and losses arising from these activities are reported as a component of net income in the period in which they arise.

Cash and Cash Equivalents

Cash and cash equivalents of $616.4 million as of March 31, 2015 (consisting of unrestricted cash and fixed income investments with maturities of less than three months, as measured from the date of purchase), were comprised of: (i) $462.3 million earmarked for, and held in, trusts supporting the Company’s Collateralized Reinsurance operations; (ii) $121.1 million held by Montpelier’s investment advisors; (iii) $25.9 million held for operating expenses, including a provision for losses that may become due for payment on short notice; and (iv) $7.1 million held for other obligations. Cash and cash equivalents of $447.7 million as of December 31, 2014 were comprised of: (i) $298.0 million supporting the Company’s Collateralized Reinsurance operations; (ii) $113.7 million held by Montpelier’s investment advisors; (iii) $25.9 million held for operating expenses, including a provision for losses that may become due for payment on short notice; and (iv) $10.1 million held for other obligations.

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Restricted Cash

Restricted cash of $4.2 million at March 31, 2015 consisted solely of collateral supporting investment securities sold short and open derivative positions. Restricted cash of $26.6 million at December 31, 2014 consisted of $6.9 million of collateral supporting investment securities sold short and open derivative positions and $19.7 million of foreign deposit accounts held at Lloyd’s.

Investments

Montpelier’s fixed maturity investments, equity securities and investment securities sold short are carried at fair value, with the net unrealized appreciation or depreciation on such securities reported within net realized and unrealized investment gains (losses) on the Company’s Consolidated Statements of Operations and Comprehensive Income.

Montpelier’s other investments consist of investments in investment funds, limited partnership interests, the BCGR Listed Fund, event-linked securities whose principal and interest are forgiven if specific events occur (“CAT Bonds”) and certain derivative instruments. See Notes 4 and 6.

Investments, including investment securities sold short, are recorded on a trade date basis. For those marketable securities not listed and regularly traded on an established exchange, fair values are determined based on bid prices, as opposed to ask prices. Fair values are not adjusted for transaction costs. Gains and losses on sales of investments are determined on a first-in, first-out basis and are included in income when realized. Realized investment gains and losses typically result from the actual sale of securities. Unrealized investment gains and losses represent the gain or loss that would result from a hypothetical sale of securities on the balance sheet date. In instances where the Company becomes aware of a significant unrealized loss with little or no likelihood of recovery, it writes down the cost basis of the investment and recognizes the loss as being realized.

Some of Montpelier’s investment managers are entitled to performance fees determined as a percentage of their portfolio’s net total return achieved over specified periods. Montpelier’s net realized and unrealized investment gains or losses and net income or loss from derivative instruments are presented net of any associated performance fees. Montpelier incurred performance fees related to investments of zero and $1.5 million during the three month periods ended March 31, 2015 and 2014, respectively. Montpelier incurred (reversed) performance fees related to investment-related derivatives of zero and $(0.7) million during the three month periods ended March 31, 2015 and 2014, respectively.

Net investment income is stated net of investment management, custody and other investment-related expenses. Investment income is recognized when earned and includes interest and dividend income together with the amortization of premiums and the accretion of discounts associated with those fixed maturity investments that were purchased at amounts different from their par value.

Repurchase and Reverse Repurchase Agreements

In connection with Montpelier’s investing activities, certain of its investment managers may enter into repurchase and reverse repurchase agreements from time to time in order to enhance Montpelier’s investment performance.

A repurchase agreement, which is essentially a form of short-term borrowing, involves the sale of an investment security to a third-party buyer with the proviso that the seller (Montpelier in this instance) will repurchase the same security from the same party for an agreed-upon price on a specified future date. As of March 31, 2015 and December 31, 2014, Montpelier did not have any open repurchase agreements.

A reverse repurchase agreement, which is essentially a form of short-term lending, involves the purchase of an investment security from a third-party seller with the proviso that the buyer (Montpelier in this instance) will sell the same security to the same party for an agreed-upon price on a specified future date. As of March 31, 2015 and December 31, 2014, Montpelier did not have any open reverse repurchase agreements.

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Common Shares Held in Treasury

The Company’s common shares held in treasury are carried at cost and any resulting gain or loss on subsequent issuances is determined on a last-in, first-out basis. As of March 31, 2015, the Company’s $8.5 million inception to-date loss from issuances of its treasury shares has been recorded as a reduction to retained earnings on the Company’s Consolidated Balance Sheet. As of December 31, 2014, the Company’s $8.1 million inception to-date loss from issuances of its treasury shares has been recorded as a reduction to retained earnings on the Company’s Consolidated Balance Sheet. See Note 7.

Funds Withheld

Funds withheld by reinsured companies represent insurance balances retained by ceding companies in accordance with contractual terms. Montpelier typically earns investment income on these balances during the period the funds are held. As of March 31, 2015 and December 31, 2014, funds withheld balances of $7.2 million and $7.6 million, respectively, were recorded within other assets on the Company’s Consolidated Balance Sheets.

Non-Controlling Interests

The following table summarizes the movements in non-controlling interests during the three month periods ended March 31, 2015 and 2014:

	Three Month Periods
	Ended March 31,
	2015			2014
Non-controlling interests - beginning	$	266.3		$	244.9
Income attributable to third-party investments in the BCGR Cell	4.6			4.7
Income attributable to third-party investments in BCRH	3.7			4.3
Net income attributable to non-controlling interests	8.3			9.0
Net third-party investments in the BCGR Cell	6.8			0.2
Dividends declared by BCRH attributable to non-controlling interests	(5.6		)	(1.9		)
Non-controlling interests - ending	$	275.8		$	252.2

Recent Accounting Pronouncements

There have been no recent accounting pronouncements that are expected to have a material impact on the presentation of the Company’s Consolidated Balance Sheets or its Consolidated Statements of Operations and Comprehensive Income.

NOTE 2. Loss and LAE Reserve Movements

Loss and LAE reserves are comprised of case reserves (which are based on claims that have been reported) and IBNR reserves (which are based on losses that are believed to have occurred but for which claims have not yet been reported and may include a provision for expected future development on existing case reserves). Case reserve estimates are initially set on the basis of loss reports received from third parties. IBNR reserves are estimated by management using various actuarial methods as well as a combination of Montpelier’s own loss experience, historical insurance industry loss experience and management’s professional judgment. Montpelier’s internal actuaries review the reserving assumptions and methodologies on a quarterly basis and its loss estimates are subject to an annual corroborative review by independent actuaries using generally accepted actuarial principles.

Montpelier’s reserving process is highly dependent on loss information received from its cedants. With respect to prior year loss and LAE development, information and experience obtained since the last reporting date included changes in loss amounts reported by ceding companies, IBNR recorded as a result of these loss advices and other information and events. In particular, loss and LAE reserves for non-catastrophe losses initially include significant IBNR as a result of timing lags inherent in the reporting process.

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The uncertainties inherent in the reserving process, potential delays by cedants and brokers in the reporting of loss information, together with the potential for unforeseen adverse developments, may result in loss and LAE reserves ultimately being significantly greater or less than the reserve provided at the end of any given reporting period. The degree of uncertainty is further increased when a significant loss event takes place near the end of a reporting period. Loss and LAE reserve estimates are regularly reviewed and updated as new information becomes known. Any resulting adjustments are reflected in operations in the period in which they become known.

The following table summarizes Montpelier’s current and prior year loss and LAE reserve movements for the three month periods ended March 31, 2015 and 2014:

	Three Month Periods
	Ended March 31,
	2015			2014
Gross unpaid loss and LAE reserves - beginning	$	775.7		$	881.6
Reinsurance recoverable on unpaid losses - beginning	(48.7		)	(63.6		)
Net unpaid loss and LAE reserves - beginning	727.0			818.0
Losses and LAE incurred:
Current year losses	73.3			62.6
Prior year losses	(25.6		)	(35.2		)
Total incurred losses and LAE	47.7			27.4
Net foreign currency translation movements on loss and LAE reserves	(16.6		)	2.1
Losses and LAE paid and approved for payment:
Current year losses	(1.3		)	(2.3		)
Prior year losses	(54.2		)	(61.1		)
Total losses and LAE paid and approved for payment	(55.5		)	(63.4		)
Net unpaid loss and LAE reserves - ending	702.6			784.1
Reinsurance recoverable on unpaid losses - ending	48.8			55.0
Gross unpaid loss and LAE reserves - ending	$	751.4		$	839.1

Prior Year Loss and LAE Development — three month period ended March 31, 2015

During the three month period ended March 31, 2015, Montpelier experienced $25.6 million in net favorable development on prior year loss and LAE reserves relating primarily to the following events and factors:

· 2010 and 2011 New Zealand earthquakes ($6.1 million decrease),

· Casualty losses relating to multiple prior years, primarily 2008-2012 ($3.4 million decrease),

· 2011 Japanese earthquake ($2.5 million decrease), and

· 2005 Hurricane Wilma ($1.6 million decrease).

In addition, claims reported to Montpelier during the first quarter of 2015 indicated that IBNR for natural catastrophe losses it initially recorded during 2014 exceeded the extent of losses that actually occurred, and consequently Montpelier decreased its loss and LAE reserves by $6.7 million.

The remaining net favorable development on prior year loss and LAE reserves recognized during this period (other than that relating to foreign currency movements, as described below) related to several smaller adjustments made across multiple classes of business.

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Prior Year Loss and LAE Development — three month period ended March 31, 2014

During the first quarter of 2014, Montpelier experienced $35.2 million in net favorable development on prior year loss and LAE reserves relating to the following events and factors:

· A casualty claim incurred during 2012 ($3.6 million increase),

· 2011 New Zealand earthquakes ($3.2 million decrease),

· 2005 U.S. Hurricanes ($2.5 million decrease),

· 2008 Hurricane Gustav ($2.2 million decrease),

· 2011 Thai floods ($1.5 million decrease),

· 2011 Japanese earthquake ($1.2 million decrease),

· 2012 Italian earthquake ($1.2 million decrease), and

· 2010 Chilean earthquake ($1.1 million decrease).

In addition to the foregoing, claims reported to Montpelier during the first quarter of 2014 indicated that IBNR for losses it initially recorded during prior years exceeded the extent of losses that actually occurred, and consequently Montpelier decreased its loss and LAE reserves as follows:

· Natural catastrophe losses initially recorded during 2013 ($9.8 million decrease), and

· Property and Specialty Individual Risk and Other Property Specialty - Treaty losses recorded during multiple prior years at Montpelier at Lloyd’s (decreases of $5.8 million and $2.3 million, respectively).

Impact of Foreign Currency Transaction Gains and Losses on Prior Year Loss and LAE Reserves

Montpelier’s prior year losses and LAE incurred include foreign currency transaction gains (losses) relating to its prior year loss and LAE reserves of $(4.0) million and $0.5 million during the three month periods ended March 31, 2015 and 2014, respectively. Since these foreign currency transaction gains (losses) are reported as decreases (increases) in Montpelier’s losses and LAE incurred, they have a direct impact on its underwriting results and its underwriting ratios.

Impact of Foreign Currency Translation Gains and Losses on Loss and LAE Reserves

Montpelier’s loss and LAE reserves include foreign currency translation gains (losses) of $16.6 million and $(2.1) million during the three month periods ended March 31, 2015 and 2014, respectively. Since these foreign currency translation gains (losses) are reported as decreases (increases) in Montpelier’s net change in foreign currency translation, which is a component of its comprehensive income or loss, they have no impact on its underwriting results or its underwriting ratios.

NOTE 3. Reinsurance

In the normal course of business, Montpelier purchases reinsurance from third parties in order to manage its exposures. The amount of reinsurance that Montpelier buys varies from year to year depending on its risk appetite, as well as the availability and cost of the reinsurance coverage. Ceded reinsurance premiums are accounted for on bases consistent with those used in accounting for the underlying premiums assumed, and are reported as reductions of net premiums written and earned. Certain of Montpelier’s assumed pro-rata contracts incorporate reinsurance protection provided by third-party reinsurers that inures to Montpelier’s benefit. These inuring reinsurance premiums are reported as reductions in gross premiums written and net premiums earned.

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All of Montpelier’s reinsurance purchases to date have represented prospective cover, meaning that the coverage has been purchased to protect Montpelier against the risk of future losses as opposed to covering losses that have already occurred but have not yet been paid. Montpelier’s reinsurance contracts consist of excess-of-loss contracts covering one or more lines of business and pro-rata reinsurance with respect to specific lines of its business. Montpelier also purchases industry loss warranty (“ILW”) policies which provide coverage for certain losses incurred, provided they are triggered by events exceeding a specified industry loss size as well as Montpelier’s own incurred loss. For non-ILW excess-of-loss reinsurance contracts, the attachment point and exhaustion of these contracts are based solely on the amount of Montpelier’s actual losses incurred from an event or events.

Montpelier remains liable for losses it incurs to the extent that any third-party reinsurer is unable or unwilling to make timely payments under reinsurance agreements. Montpelier would also be liable in the event that its ceding companies were unable to collect amounts due from underlying third-party reinsurers.

Montpelier records provisions for uncollectible reinsurance recoverable when collection becomes unlikely due to the reinsurer’s inability to pay. Montpelier does not believe that there are any amounts uncollectible from its reinsurers as of the balance sheet dates presented.

Earned reinsurance premiums ceded were $21.1 million and $20.8 million for the three month periods ended March 31, 2015 and 2014, respectively. Net increases (decreases) in estimated ultimate reinsurance recoveries included in loss and LAE were $5.5 million and $(3.4) million for the three month periods ended March 31, 2015 and 2014, respectively. Changes in estimated ultimate reinsurance recoveries are primarily the result of changes in the estimated gross losses incurred. In addition to loss recoveries, certain of Montpelier’s ceded reinsurance contracts provide for recoveries of additional premiums, reinstatement premiums and for forgone no-claims bonuses, which are incurred when losses are ceded to these reinsurance contracts.

Reinsurance Recoverable on Paid and Unpaid Losses

Under Montpelier’s reinsurance security policy, reinsurers are typically required to be rated “A-” (Excellent) or better by A.M. Best (or an equivalent rating with another recognized rating agency) at the time the policy is written. Montpelier also considers reinsurers that are not rated or do not fall within this threshold on a case-by-case basis if adequately collateralized. Montpelier monitors the financial condition and ratings of its reinsurers on an ongoing basis.

The A.M. Best ratings of Montpelier’s reinsurers related to reinsurance recoverable on paid and unpaid losses as of March 31, 2015 and December 31, 2014 are as follows:

	March 31, 2015				December 31, 2014
Rating	Amount		% of Total		Amount		% of Total
A++	$	0.1	2	%	$	0.1	1	%
A+	2.8		57		2.8		40
A	1.3		27		3.2		45
Unrated by A.M. Best	0.7		14		1.0		14
Total reinsurance recoverable on paid losses	$	4.9	100	%	$	7.1	100	%

	March 31, 2015				December 31, 2014
Rating	Amount		% of Total		Amount		% of Total
A++	$	0.3	1	%	$	0.3	1	%
A+	23.5		47		21.8		44
A	18.5		38		18.8		39
A-	1.3		3		2.2		5
Unrated by A.M. Best	5.2		11		5.6		11
Total reinsurance recoverable on unpaid losses	$	48.8	100	%	$	48.7	100	%

Montpelier’s unrated reinsurance recoverables as of March 31, 2015 and December 31, 2014 relate to reinsurers that have either: (i) fully-collateralized the reinsurance obligation; (ii) a Standard & Poor’s financial strength rating equivalent to an A.M. Best rating of “A-” (Excellent) or better; or (iii) subsequently entered run-off but are considered by management to be financially sound.

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Reinsurance Disputes

Montpelier is subject to litigation and arbitration proceedings in the normal course of its business. These proceedings often involve reinsurance contract disputes which are typical for the reinsurance industry. Expected or actual reductions in reinsurance recoveries due to contract disputes (as opposed to a reinsurer’s inability to pay) are not recorded as an uncollectible reinsurance recoverable. Rather, they are factored into the determination of, and are reflected in, Montpelier’s net loss and LAE reserves.

As of March 31, 2015, Montpelier had no ongoing material insurance or reinsurance contract disputes.

NOTE 4. Investments

Fixed Maturity Investments and Equity Securities

The table below shows the aggregate cost (or amortized cost) and fair value of Montpelier’s fixed maturity investments and equity securities, by investment type, as of the dates indicated:

	March 31, 2015				December 31, 2014
	Cost or Amortized Cost		Fair Value		Cost or Amortized Cost		Fair Value
Fixed maturity investments:
Corporate debt securities	$	756.2	$	759.6	$	853.6	$	848.2
Residential mortgage-backed securities	367.3		371.1		194.8		196.8
Debt securities issued/sponsored by the U.S. Treasury and its agencies	292.7		294.2		408.3		408.7
Commercial mortgage-backed securities	99.5		100.6		100.7		101.4
Debt securities issued by non-U.S. governments and their agencies	89.3		89.4		99.0		98.7
Debt securities issued by U.S. states and political subdivisions	14.1		14.3		19.4		19.4
Other asset-backed obligations	307.9		309.4		227.1		227.8
Total fixed maturity investments	$	1,927.0	$	1,938.6	$	1,902.9	$	1,901.0
Equity securities:
Exchange-listed funds	$	178.7	$	184.2	$	150.3	$	159.4
Other	0.2		0.2		13.5		13.7
Total equity securities	$	178.9	$	184.4	$	163.8	$	173.1

As a provider of insurance and reinsurance for natural and man-made catastrophes, Montpelier could be required to pay significant losses on short notice. As a result, its asset allocation is predominantly oriented toward cash and high-quality fixed maturity securities, cash equivalents and other investments with a short average duration. This asset allocation is designed to reduce Montpelier’s sensitivity to interest rate fluctuations and provide a secure level of liquidity for the settlement of its liabilities as they arise. As of March 31, 2015, the average duration of Montpelier’s investment portfolio, including cash and cash equivalents, was 1.0 year (inclusive of relevant derivative and short positions).

As of March 31, 2015, 72% of Montpelier’s fixed maturity investments were either rated “A” (Strong) or better by Standard & Poor’s (or an equivalent rating with another recognized rating agency) or represented U.S. government or U.S. government-sponsored enterprise securities, 10% were rated “BBB” (Good) by Standard & Poor’s (or an equivalent rating with another recognized rating agency) and 18% were either unrated or rated below “BBB” (or an equivalent rating with another recognized rating agency).

In addition to the investment securities presented above, Montpelier had open short fixed maturity positions of $169.3 million and $70.5 million as of March 31, 2015 and December 31, 2014, respectively. Montpelier also had open short equity and investment option and future positions of zero and $5.7 million as of March 31, 2015 and December 31, 2014, respectively. Net unrealized gains (losses) associated with Montpelier’s open short positions totaled $(1.2) million and $0.3 million as of March 31, 2015 and December 31, 2014, respectively.

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Other Investments

The table below shows the aggregate cost and carrying value of Montpelier’s other investments, by investment type, as of the dates indicated:

	March 31, 2015					December 31, 2014
	Cost		Carrying Value			Cost		Carrying Value
Other investments carried at net asset value:
Investment funds and limited partnership interests	$	524.6	$	524.6		$	586.2	$	586.2
Investment in the BCGR Listed Fund	0.4		0.4			4.3		4.3
Total other investments at net asset value	$	525.0	$	525.0		$	590.5	$	590.5

Other investments carried at fair value:
Derivative instruments	$	—	(0.5		)	$	—	2.1
CAT Bonds	2.0		2.0			1.9		2.0
Investment funds and limited partnership interests	83.2		80.3			50.0		47.4
Total other investments carried at fair value	$	85.2	$	81.8		$	51.9	$	51.5
Other investments	$	610.2	$	606.8		$	642.4	$	642.0

Montpelier’s investments in investment funds and limited partnership interests are carried at either their fair values or their underlying net asset values, depending on Montpelier’s ownership share. For those investment funds and limited partnership interests carried at fair values, the underlying net asset value is used as a best estimate of fair value.

Net appreciation or depreciation in the value of Montpelier’s investments in investment funds, limited partnerships, the BCGR Listed Fund and CAT Bonds is reported as net realized and unrealized investment gains (losses) on the Company’s Consolidated Statements of Operations and Comprehensive Income. Net appreciation or depreciation on Montpelier’s derivative instruments is reported as net income (loss) from derivative instruments.

Montpelier’s interests in investment funds and limited partnerships relate to vehicles that invest in the following:

· Highly-rated bond markets, using fixed maturities and derivatives to take long and short positions,

· Structured credit instruments backed by residential mortgages and other loans and receivables,

· High-yield fixed maturities and loans,

· Public and private equity securities, derivative instruments and currency exposures, and

· Small growth-oriented businesses.

The majority of Montpelier’s interests in investment funds and limited partnerships can be redeemed or sold without penalty within 30 days. Redemptions of the remaining interests are subject to early termination fees and liquidity constraints. Montpelier does not expect to redeem a significant portion of any of these investments during the next twelve months.

Montpelier’s investment in the BCGR Listed Fund at March 31, 2015 and December 31, 2014 represents the amount of its investment in the BCGR Listed Fund that had not been deployed into the BCGR Cell as of those dates.

Montpelier’s derivative instruments carried as other investments consisted of the Foreign Exchange Contracts, Credit Derivatives, Interest Rate Contracts, Investment Options and Futures (long) and the LIBOR Swap as of March 31, 2015 and December 31, 2014. See Note 6.

Fair Value Hierarchy

GAAP establishes a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into the three broad levels described below. The level in the hierarchy within which a given fair value measurement falls is determined based on the lowest level input that is significant to the measurement. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date, Level 2 inputs are inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly, and Level 3 inputs are unobservable inputs for the asset or liability.

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Montpelier uses an independent service provider for assistance with its investment accounting function. This service provider, as well as Montpelier’s investment managers, use several pricing services and brokers to assist with the determination of the fair value of Montpelier’s marketable securities. Montpelier performs several reviews of these values as it is ultimately management’s responsibility to ensure that the fair values reflected in the Company’s consolidated financial statements are appropriate. The ultimate pricing source varies depending on the security and pricing service, but investments valued on the basis of observable (Levels 1 and 2) inputs are generally assigned values on the basis of actual transactions. Securities valued on the basis of pricing models with significant unobservable inputs or non-binding broker quotes are classified as Level 3.

In accordance with GAAP, the valuation techniques used by Montpelier and its pricing services maximize the use of observable inputs. Unobservable inputs are used to measure fair value only to the extent that observable inputs are unavailable. Montpelier uses both the market and income approaches in valuing its investments. There have been no significant changes in the Company’s use of valuation techniques or related inputs during the periods presented.

The following tables present Montpelier’s investments carried at fair value, categorized by the level within the hierarchy in which the fair value measurements fall, at March 31, 2015 and December 31, 2014:

	March 31, 2015
	Level 1		Level 2		Level 3		Total
Fixed maturity investments:
Corporate debt securities	$	—	$	738.3	$	21.3	$	759.6
Residential mortgage-backed securities	—		371.1		—		371.1
Debt securities issued/sponsored by the U.S. Treasury and its agencies	234.0		60.2		—		294.2
Commercial mortgage-backed securities	—		100.6		—		100.6
Debt securities issued by non-U.S. governments and their agencies	—		89.4		—		89.4
Debt securities issued by U.S. states and political subdivisions	—		14.3		—		14.3
Other asset-backed obligations	—		295.5		13.9		309.4
Total fixed maturity investments	$	234.0	$	1,669.4	$	35.2	$	1,938.6
Equity securities:
Exchange-listed funds	$	184.2	$	—	$	—	$	184.2
Other	0.2		—		—		0.2
Total equity securities	$	184.4	$	—	$	—	$	184.4
Other investments carried at fair value	$	—	$	1.5	$	80.3	$	81.8
Total investments carried at fair value	$	418.4	$	1,670.9	$	115.5	$	2,204.8
Other investments carried at net asset value	$	—	$	415.9	$	109.1	$	525.0
Total investments	$	418.4	$	2,086.8	$	224.6	$	2,729.8

	December 31, 2014
	Level 1		Level 2		Level 3		Total
Fixed maturity investments:
Corporate debt securities	$	—	$	838.1	$	10.1	$	848.2
Debt securities issued/sponsored by the U.S. Treasury and its agencies	333.4		75.3		—		408.7
Residential mortgage-backed securities	—		196.8		—		196.8
Commercial mortgage-backed securities	—		101.4		—		101.4
Debt securities issued by non-U.S. governments and their agencies	—		98.7		—		98.7
Debt securities issued by U.S. states and political subdivisions	—		19.4		—		19.4
Other asset-backed obligations	—		201.5		26.3		227.8
Total fixed maturity investments	$	333.4	$	1,531.2	$	36.4	$	1,901.0
Equity securities:
Exchange-listed funds	$	159.4	$	—	$	—	$	159.4
Other	13.7		—		—		13.7
Total equity securities	$	173.1	$	—	$	—	$	173.1
Other investments carried at fair value	$	—	$	4.1	$	47.4	$	51.5
Total investments carried at fair value	$	506.5	$	1,535.3	$	83.8	$	2,125.6
Other investments carried at net asset value	$	—	$	492.2	$	98.3	$	590.5
Total investments	$	506.5	$	2,027.5	$	182.1	$	2,716.1

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Level 1 Securities

Montpelier’s investments classified as Level 1 as of March 31, 2015 and December 31, 2014 consisted of U.S. Treasuries and long equity positions that are publicly listed and/or actively traded in an established market. In addition, as of December 31, 2014 approximately 26% of Montpelier’s open short fixed maturity positions, and substantially all of Montpelier’s short equity positions, were valued on the basis of Level 1 inputs. Montpelier did not have any open short positions valued on the basis of Level 1 inputs as of March 31, 2015.

Level 2 Securities

For Montpelier’s investments classified as Level 2 as of March 31, 2015 and December 31, 2014, Montpelier’s pricing vendors generally utilize third-party market data and other observable inputs in matrix pricing models to determine prices. Although prices for these securities obtained from broker quotations are generally considered non-binding, they are based on observable inputs and secondary trading patterns of similar securities obtained from active, non-distressed markets. In addition, as of March 31, 2015 and December 31, 2014, 100% and approximately 74%, respectively, of Montpelier’s open short fixed maturity positions were valued on the basis of Level 2 inputs.

Further details for selected investment types classified as Level 2 follow:

Corporate debt securities. Montpelier’s Level 2 corporate debt securities are priced using market sources and other considerations such as the issuer of the security, credit data, the specific terms and conditions of the securities, including any specific features which may influence risk, as well as other observations from relevant market and sector news reports. Evaluations are updated by obtaining broker quotes and other market information including actual trade volumes, when available. Each security is individually evaluated using a spread model which is added to the U.S. Treasury curve.

Residential mortgage-backed securities and debt securities issued/sponsored by the U.S. Treasury and its agencies. Montpelier’s Level 2 residential mortgage-backed securities and debt securities issued by U.S. agencies are priced using a mortgage-pool-specific model which utilizes daily inputs from the to-be-announced, or “TBA” market (the most liquid secondary market for mortgage loans), as well as the U.S. Treasury market. This pricing model also utilizes additional information such as the weighted average maturity, weighted average coupon and other available pool level data which is provided by the agency. Valuations are also corroborated by daily active market quotes.

Montpelier’s Level 2 U.S. government-sponsored enterprise securities are priced using information from market sources, as well as other observations from relevant market and sector news. Evaluations are updated by obtaining broker quotes and other market information including actual trade volumes, when available. Each security is individually evaluated using analytical models which incorporate option-adjusted spreads and other relevant interest rate data.

Commercial mortgage-backed securities. Montpelier’s Level 2 commercial mortgage-backed securities are priced using dealer quotes and other available trade information such as bids and offers, prepayment speeds (which may be adjusted for the underlying collateral or current price data), the U.S. Treasury curve, swap curve and TBA values, as well as cash settlement. This pricing methodology utilizes a single cash flow stream, computes both a yield-to-call and weighted average yield-to-maturity and generates a derived price for the security by applying the most likely scenario.

Other investments. Montpelier’s Level 2 other investments carried at fair value consist of publicly traded derivative instruments and CAT bonds. Montpelier’s Level 2 other investments carried at net asset value consist of certain investments in funds and limited partnerships interests whose carrying values are based on net asset values provided by the relevant investment managers.

There were no transfers between Levels 1 and 2 during any of the periods presented.

Level 3 Securities

Montpelier’s investments classified as Level 3 as of March 31, 2015 and December 31, 2014 consisted primarily of the following: (i) with respect to certain fixed maturity investments, bank loans and certain asset-backed securities, many of which are not actively traded; and (ii) with respect to other investments, certain investments in investment funds and limited partnerships. In addition, as of March 31, 2015 and December 31, 2014, none of Montpelier’s open short fixed maturity positions were valued on the basis of Level 3 inputs.

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Further details for selected investment types follow:

Corporate debt securities. Montpelier’s Level 3 corporate debt securities represent: (i) bank loans that are priced using non-binding broker quotes that cannot be corroborated with other externally obtained information; and (ii) debt instruments issued by private entities that are priced using third-party market analyses and cash-flow models maintained by Montpelier.

Other asset-backed obligations. Montpelier’s Level 3 other asset-backed obligations represent tranches of collateralized loan obligations that are priced using non-binding broker quotes which may not be corroborated with other externally obtained information.

Other investments. Montpelier’s Level 3 other investments include certain investments in investment funds and limited partnerships which cannot be readily redeemed, and whose values are based on net asset values obtained from the investment manager or general partner of the respective entity. As of March 31, 2015, nearly all of Montpelier’s Level 3 other investments were subject to lock-up restrictions and therefore cannot be redeemed until such restrictions expire in 2015 and 2016.

As of March 31, 2015 and December 31, 2014, the Company’s Level 3 investments measured at fair value represented 5.2% and 3.9% of its total investments measured at fair value, respectively. As of March 31, 2015 and December 31, 2014, the Company’s total Level 3 investments represented 8.2% and 6.7% of its total investments, respectively. The primary reason for the increase in the proportionate share of investments represented by Level 3 securities is the purchase of investment funds and limited partnership interests during the first quarter of 2015 that are subject to the lock-up restrictions previously noted.

The following tables reconcile the beginning and ending balances for all investments measured at fair value on a recurring basis using Level 3 inputs during the three month periods ended March 31, 2015 and 2014:

	Three Month Period Ended March 31, 2015
	Beginning Level 3 balance		Purchases		Sales and maturities			Net realized gains		Net unrealized gains (losses)			Net transfers out			Ending Level 3 balance
Fixed maturity investments:
Corporate debt securities	$	10.1	$	11.5	$	(0.3	)	$	—	$	—		$	—		$	21.3
Other asset-backed obligations	26.3		2.9		(0.5		)	—		0.1			(14.9		)	13.9
Total fixed maturity investments	36.4		14.4		(0.8		)	—		0.1			(14.9		)	35.2
Other investments	47.4		33.2		—			—		(0.3		)	—			80.3
Total Level 3 investments at fair value	$	83.8	$	47.6	$	(0.8	)	$	—	$	(0.2	)	$	(14.9	)	$	115.5

	Three Month Period Ended March 31, 2014
	Beginning Level 3 balance		Purchases		Sales and maturities			Net realized gains		Net unrealized gains (losses)			Net transfers out			Ending Level 3 balance
Fixed maturity investments:
Corporate debt securities	$	10.0	$	0.8	$	(2.4	)	$	0.1	$	(0.1	)	$	(0.3	)	$	8.1
Other asset-backed obligations	18.3		4.2		(5.2		)	0.1		0.1			(1.4		)	16.1
Total fixed maturity investments	28.3		5.0		(7.6		)	0.2		—			(1.7		)	24.2
Equity investments	0.2		—		—			—		—			—			0.2
Other investments	0.1		—		(0.1		)	—		—			—			—
Total Level 3 investments	$	28.6	$	5.0	$	(7.7	)	$	0.2	$	—		$	(1.7	)	$	24.4

The transfers from Level 3 to Level 2 during the three month period ended March 31, 2015 reflect an increase in the overall quality and transparency of the pricing information that the Company receives from its pricing vendors. The transfers from Level 3 to Level 2 during the three month period ended March 31, 2014 were not significant.

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Changes in Carrying Value

Changes in the carrying value of Montpelier’s investment portfolio and its short investment positions for the three month periods ended March 31, 2015 and 2014, consisted of the following:

	Net Realized Gains (Losses) on Investments			Net Unrealized Gains (Losses) on Investments			Net Foreign Exchange and Income (Expense) From Certain Derivatives (1)			Total Changes in Carrying Value Reflected in Revenues
Three Month Period Ended March 31, 2015:
Fixed maturity investments	$	(1.9	)	$	11.2		$	0.9		$	10.2
Equity securities	7.2			(3.9		)	(1.9		)	1.4
Other investments	1.4			(0.2		)	(3.3		)	(2.1		)

Three Month Period Ended March 31, 2014:
Fixed maturity investments	$	(3.5	)	$	18.8		3.2			$	18.5
Equity securities	2.9			0.7			(1.8		)	1.8
Other investments	0.5			3.3			(3.2		)	0.6

(1) Represents net realized and unrealized foreign currency gains and losses from investments and income and losses from the following derivative instruments: (i) Foreign Exchange Contracts; (ii) Credit Derivatives; (iii) Interest Rate Contracts; (iv) Investment Options and Futures; and (v) the LIBOR Swap (see Notes 5 and 6). These derivatives are carried at fair value within other investments on the Company’s Consolidated Balance Sheets.

Net Investment Income

Montpelier’s net investment income for the three month periods ended March 31, 2015 and 2014 consisted of the following:

	Three Month Periods Ended March 31,
	2015		2014
Fixed maturity investments	$10.5		$14.6
Equity securities	0.3		0.6
Other investments	0.1		0.1
Total investment income	10.9		15.3
Investment expenses	(1.1	)	(2.4	)
Net investment income	$9.8		$12.9

Investment Assets Held in Trust

Blue Water Re, which commenced its operations in June 2012, does not operate with a financial strength rating and, instead, fully collateralizes its reinsurance obligations through cash and cash equivalents held in trust funds established by Blue Water Re (the “Blue Water Trusts”) for the benefit of ceding companies. As of March 31, 2015 and December 31, 2014, the fair value of all assets held in the Blue Water Trusts was $428.5 million and $410.9 million, respectively, which met the minimum values required on those dates.

As of March 31, 2015 and December 31, 2014, Blue Capital Re had pledged $187.0 million and $184.0 million, respectively, of its cash and cash equivalents to trust accounts established for the benefit of Blue Water Re pursuant to the BW Retrocessional Agreement (see Note 14). These funds are included in the value of the Blue Water Trusts balance presented above.

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Blue Capital Re ILS, which commenced its operations in November 2013, fully collateralizes its insurance-linked security obligations through cash and cash equivalents held in trust funds established by Blue Capital Re ILS (the “Blue Capital Re ILS Trusts”) for the benefit of third parties. As of March 31, 2015 and December 31, 2014, the fair value of all assets held in the Blue Capital Re ILS Trusts was $5.2 million and $10.0 million, respectively, which met the minimum values required on those dates.

In 2011 Montpelier Re entered into a Reinsurance Trust (the “MUSIC Trust”). The MUSIC Trust was established as a means of providing statutory credit to MUSIC in support of the business Montpelier retained in connection with the MUSIC Sale. As of March 31, 2015 and December 31, 2014, the fair value of all assets held in the MUSIC Trust was $22.2 million and $25.3 million, respectively, which met the minimum value required on those dates.

In 2010 Montpelier Re entered into a Multi-Beneficiary U.S. Reinsurance Trust (the “Reinsurance Trust”) for the benefit of certain of its U.S. cedants. The Reinsurance Trust was established as a means of providing statutory credit to Montpelier Re’s cedants. Montpelier Re has been granted authorized or trusteed reinsurer status in all U.S. states and the District of Columbia. As of March 31, 2015 and December 31, 2014, the fair value of all assets held in the Reinsurance Trust was $344.8 million and $342.2 million, respectively, which met the minimum value required on those dates.

In 2011 Montpelier Re established a second Multi-Beneficiary Reinsurance Trust (the “FL Trust”) in connection with a reduction in its Florida’s collateral requirements. As of March 31, 2015 and December 31, 2014, the fair value of all assets held in the FL Trust was $26.4 million and $26.2 million, respectively, which met the minimum value required on those dates.

In 2010 Montpelier entered into a Lloyd’s Deposit Trust Deed (the “Lloyd’s Capital Trust”) in order to meet MCL’s ongoing funds at Lloyd’s (“FAL”) requirements. The minimum value of cash and investments held by the Lloyd’s Capital Trust is determined on the basis of MCL’s Individual Capital Assessment, which is used to determine the required amount of FAL. As of March 31, 2015 and December 31, 2014, the fair value of all assets held in the Lloyd’s Capital Trust was $213.0 million and $212.8 million, respectively, which met the minimum value required on those dates.

Premiums received by Syndicate 5151 are required to be received into the Lloyd’s Premiums Trust Funds (the “Premiums Trust Funds”). Under the Premiums Trust Funds’ deeds, assets may only be used for the payment of claims and valid expenses for a stated period of time. See Note 11. As of March 31, 2015 and December 31, 2014, the fair value of all assets held in the Premiums Trust Funds was $280.5 million and $284.5 million, respectively.

Montpelier’s investment assets held in trust appear on the Company’s Consolidated Balance Sheets as cash and cash equivalents, investments and accrued investment income, as appropriate.

Sales and Maturities of Investments

Sales of investments totaled $1,145.3 million and $2,091.3 million for the three month periods ended March 31, 2015 and 2014, respectively. Maturities, calls and paydowns of investments totaled $182.1 million and $73.8 million for the three month periods ended March 31, 2015 and 2014, respectively. There were no non-cash exchanges or involuntary sales of investment securities during the periods presented.

Pending Securities Litigation

During 2011 Montpelier Re was named in a series of lawsuits filed by a group of plaintiffs in their capacity as trustees for senior debt issued by the Tribune Company (“Tribune”) on behalf of various senior debt holders. Montpelier Re, along with thousands of other named defendants, formerly owned Tribune common shares and tendered such common shares pursuant to a 2007 leveraged buyout led by Tribune management (the “Tribune LBO”). Tribune subsequently filed for bankruptcy protection at the end of 2008 and emerged from bankruptcy on December 31, 2012.

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The plaintiffs are suing all tendering shareholders, including Montpelier Re, on the grounds of fraudulent conveyance and seek recovery of the proceeds received pursuant to the Tribune LBO on the basis that the transaction was undertaken without fair consideration and left Tribune insolvent. The various lawsuits are still pending and, in December 2011, were consolidated in the Federal District Court for the Southern District of New York by the U.S. Judicial Panel on Multidistrict Litigation.

Montpelier Re was also named in a similar suit filed by the Official Committee of Unsecured Creditors in the Tribune bankruptcy case. This suit was filed in the U.S. Bankruptcy Court for the District of Delaware and also asserts a fraudulent conveyance claim involving the Tribune LBO.

In the event that the plaintiffs in these suits were to fully prevail, Montpelier Re would have to return the $4.4 million in cash proceeds it received in connection with the Tribune common shares tendered pursuant to the Tribune LBO.

NOTE 5. Debt, Credit Facilities and Trust Arrangements

Senior Unsecured Debt Due 2022 (“Senior Notes”)

On October 5, 2012, the Company issued $300.0 million in principal amount of Senior Notes. The Senior Notes bear interest at a fixed rate of 4.70% per annum, payable semi-annually in arrears on April 15 and October 15 of each year and were issued at a price of 99.682% of their principal amount, providing an effective yield to investors of 4.74%. The Senior Notes are scheduled to mature on October 15, 2022, and do not contain any covenants regarding financial ratios or specified levels of net worth or liquidity to which the Company or any of its subsidiaries must adhere. The Company may redeem the Senior Notes at any time, in whole or in part, at a “make-whole” redemption price, plus accrued and unpaid interest.

The net proceeds from the issuance of the Senior Notes, after deducting the issuance discount and debt issuance costs, were $296.4 million. The debt issuance costs of $2.7 million associated with the Senior Notes have been capitalized within other assets in the Company’s Consolidated Balance Sheets and will be amortized over the life of the Senior Notes.

The carrying value of the Senior Notes as of March 31, 2015 and December 31, 2014, was $299.3 million.

The Company incurred interest expense on the Senior Notes of $3.5 million during each of the three month periods ended March 31, 2015 and 2014, respectively. The Company was not required to pay any interest on the Senior Notes during such periods.

Trust Preferred Securities

In January 2006 the Company, through Montpelier Capital Trust III, participated in a private placement of $100.0 million of capital securities (the “Trust Preferred Securities”). The Trust Preferred Securities mature on March 30, 2036, are redeemable at Montpelier Capital Trust III’s option at par, and require quarterly distributions of interest to the holders. The Trust Preferred Securities bear interest at a floating rate equal to the 3-month LIBOR plus 380 basis points, reset quarterly. This floating rate varied from 4.06% to 4.07% and from 4.03% to 4.05% during the three month periods ended March 31, 2015 and 2014, respectively.

The Trust Preferred Securities do not contain any covenants regarding financial ratios or specified levels of net worth or liquidity to which the Company or any of its subsidiaries must adhere.

The Company incurred and paid interest on the Trust Preferred Securities of $1.0 million during each of the three month periods ended March 31, 2015 and 2014, respectively.

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LIBOR Swap

In February 2012, the Company entered into a five-year swap agreement with a third-party (the “LIBOR Swap”) which will result in the future net cash flows in connection with the Trust Preferred Securities, for the five-year period beginning March 30, 2012, being the same as if these securities bore interest at a fixed rate of 4.905%, provided the Company holds the LIBOR Swap to its maturity. Net realized and unrealized gains and losses associated with the LIBOR Swap are reported within net income (loss) from derivative instruments on the Company’s Consolidated Statements of Operations and Comprehensive Income, as opposed to interest and financing expenses. The fair value of the LIBOR Swap is derived based on other observable (Level 2) inputs. See Note 6.

Credit Agreements

In May 2014, BCRH entered into a 364-day unsecured credit agreement (the “BCRH 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 BCRH 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. BCRH is also subject to an ongoing annual commitment and administrative fee of 0.375% of the facility’s total capacity.

As of March 31, 2015 and December 31, 2014, BCRH had $4.0 million and $8.0 million of outstanding borrowings, respectively, under the BCRH Credit Agreement. Of the outstanding borrowings at December 31, 2014, $4.0 million was repaid on January 26, 2015 and the currently outstanding $4.0 million borrowing must be repaid or extended, in the form of a new borrowing, no later than November 2, 2015. The interest rate associated with BCRH’s borrowings during the three month period ended March 31, 2015 ranged from 1.32% to 1.33%.

The Company serves as a guarantor for the BCRH Credit Agreement and is entitled to receive an annual guarantee fee from BCRH equal to 0.125% of the facility’s total capacity. See Note 14.

BCRH incurred and paid interest and commitment fees on its borrowings under the BCRH Credit Agreement of less than $0.1 million during the three month period ended March 31, 2015.

The BCRH Credit Agreement contains covenants that limit BCRH’s and, to a lesser extent, the Company’s ability to, among other things, grant liens on its assets, sell assets, merge or consolidate, incur debt and enter into certain transactions with affiliates. The BCRH Credit Agreement also contains covenants that require: (i) BCRH to maintain a debt to total capitalization ratio less than or equal to 22.5%; (ii) the Company to maintain a financial strength rating from Fitch Ratings Ltd. of at least “BBB+”; and (iii) each of BCRH and the Company to maintain at least 70% of its net worth as of the date of the BCRH Credit Agreement. If BCRH or the Company were to fail to comply with any of these covenants, the lender could revoke the facility and exercise remedies against BCRH or the Company. As of March 31, 2015, BCRH and the Company were in compliance with each of the covenants associated with the BCRH Credit Agreement.

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.

The Company serves as a guarantor for the BCGR Credit Agreement and is entitled to receive an annual guarantee fee from the BCGR Listed Fund equal to 0.125% of the facility’s total capacity.

As of March 31, 2015, there were no borrowings made under the BCGR Credit Agreement.

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The BCGR Credit Agreement contains covenants that limit the BCGR Listed Fund’s and, to a lesser extent, the Company’s ability, among other things, to grant liens on its assets, sell assets, merge or consolidate, incur debt and enter into certain transactions with affiliates. The BCGR Credit Agreement also contains a financial covenant that requires the Company to maintain a leverage ratio at or below 30%. If the BCGR Listed Fund or the Company were to fail to comply with any of these covenants, the lender could revoke the facility and exercise remedies against the BCGR Listed Fund or the Company. As of March 31, 2015, the Company was in compliance with each of the covenants associated with the BCGR Credit Agreement.

Letter of Credit Facilities

Montpelier Re maintains letter of credit facilities and provides letters of credit to third parties as a means of providing collateral and/or statutory credit in varying amounts to certain of its cedants. These letter of credit facilities were secured by collateral accounts containing cash and investments totaling $34.0 million and $33.8 million as of March 31, 2015 and December 31, 2014, respectively. The following table outlines these facilities as of March 31, 2015:

Secured Operational Letter of Credit Facilities	Total Capacity		Amount Drawn		Expiry Date

Bilateral Facility	$	75.0	$	18.8	None
Four Year Committed Facility	75.0		3.4		Oct. 2016

The agreements governing these letter of credit facilities contain covenants that limit Montpelier’s ability, among other things, to grant liens on its assets, sell assets, merge or consolidate, incur debt and enter into certain burdensome agreements. In addition, the secured facilities require the Company to maintain debt leverage of no greater than 30% and Montpelier Re to maintain an A.M. Best financial strength rating of no less than “B++.” If the Company or Montpelier Re were to fail to comply with these covenants or fail to meet these financial ratios, the lenders could revoke the facilities and exercise remedies against the collateral. As of March 31, 2015 and December 31, 2014, the Company and Montpelier Re were in compliance with all covenants.

Montpelier Re’s Bilateral Facility, which has a capacity of $75.0 million, is subject to an annual commitment fee of 0.45% on drawn balances. As of March 31, 2015, there were $18.8 million in outstanding letters of credit drawn under this facility.

Montpelier Re’s Four Year Committed Facility, which has a capacity of $75.0 million, is subject to an annual commitment fee of between 0.25% and 0.35% on drawn balances (depending on the type of collateral provided) and 0.125% on undrawn balances. As of March 31, 2015, there were $3.4 million in outstanding letters of credit drawn under this facility.

Trust Arrangements

Blue Water Re and Blue Capital Re have each established trusts as a means of providing collateralized reinsurance protection to its cedants.

Blue Capital Re ILS has established the Blue Capital Re ILS Trusts as a means of collateralizing its insurance-linked security obligations for the benefit of third parties.

Montpelier Re has established the MUSIC Trust as a means of providing statutory credit to MUSIC.

Montpelier Re has established the Reinsurance Trust as a means of providing statutory credit to certain of Montpelier Re’s U.S. cedants.

Montpelier Re has established the FL Trust in connection with its reduced collateral requirements to cedants domiciled in Florida.

Montpelier has established the Lloyd’s Capital Trust in order to meet MCL’s ongoing FAL requirements.

Syndicate 5151’s premium receipts are required to be received into the Premiums Trust Funds.

See Note 4 for further information regarding the aforementioned trust agreements.

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NOTE 6. Derivative Instruments

Montpelier enters into derivative instruments from time to time in order to manage certain of its business risks and to supplement its investing and underwriting activities.

Foreign currency risk, specifically Montpelier’s risk associated with making claim payments in foreign currencies, is managed through the use of foreign currency exchange agreements (“Foreign Exchange Contracts”).

As an extension of Montpelier’s investing activities, certain of its investment managers have entered into credit derivative arrangements (“Credit Derivatives”), interest rate contracts (“Interest Rate Contracts”) and investment options and futures (“Investment Options and Futures”), as well as Foreign Exchange Contracts.

In order to fix the future net cash flows associated with its Trust Preferred Securities to be a set amount each period, the Company entered into the LIBOR Swap. See Note 5.

As a means of managing its underwriting risk, Montpelier has entered into an ILW swap contract (the “Outward ILW Swap”), which provide reinsurance-like protection to Montpelier for specific loss events associated with certain lines of its business.

As an extension of its underwriting activities, Montpelier has sold ILW protection (“Inward ILW Swaps”), which provide reinsurance-like protection to third parties for specific loss events.

Montpelier uses an independent service provider for assistance with its derivative accounting function. This service provider, as well as Montpelier’s investment managers, use pricing services and brokers to assist with the determination of the fair value of the Credit Derivatives, the Interest Rate Contracts, the Investment Options and Futures and certain of the Foreign Exchange Contracts. Montpelier reviews these values as it is ultimately management’s responsibility to ensure that the fair values reflected in the Company’s consolidated financial statements are appropriate.

For the remaining Foreign Exchange Contracts and the LIBOR swap, Montpelier determines the fair values on the basis of information received from counterparties and verification by reference to published rates. The Outward ILW Swap and the Inward ILW Swaps are valued on the basis of models developed by Montpelier.

In accordance with GAAP, the valuation techniques used by Montpelier and its pricing services maximize the use of observable inputs. Unobservable inputs are used to measure fair value only to the extent that observable inputs are unavailable. Montpelier uses both the market and income approaches in valuing its derivatives. There have been no significant changes in the Company’s use of valuation techniques or related inputs during the periods presented.

None of Montpelier’s derivatives are formally designated as hedging instruments.

The following tables present the fair values, notional values (expressed in millions of notional units) and balance sheet location of Montpelier’s derivative instruments recorded at March 31, 2015 and December 31, 2014 and the net income (loss) from such derivative instruments during the three month periods ended March 31, 2015 and 2014:

		March 31, 2015				December 31, 2014
Derivative Instrument	Balance Sheet Location	Fair Value			Notional Units	Fair Value			Notional Units
Foreign Exchange Contracts:
U.S. Dollars purchased	Other Investments	$	(0.7	)	45	$	—		—
U.S. Dollars sold	Other Investments	1.0			15	(0.1		)	36
Cross-currency	Other Investments	—			—	0.7			155
Credit Derivatives	Other Investments	0.1			12	1.8			224
Interest Rate Contracts	Other Investments	(0.2		)	877	—			557
Investment Options and Futures - long	Other Investments	—			248	—			176
Investment Options and Futures - short	Other Liabilities	—			47	—			—
LIBOR Swap	Other Investments	(0.7		)	100	(0.3		)	100
Inward ILW Swaps	Other Liabilities	(3.9		)	20	—			—

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	Three Month Periods Ended March 31,
Income (Loss) From Derivative Instruments:	2015			2014
Foreign Exchange Contracts - underwriting activities	$	(1.2	)	$	1.9
Foreign Exchange Contracts - investing activities	1.6			(5.6		)
Credit Derivatives	(2.4		)	(2.9		)
Interest Rate Contracts	(0.4		)	2.5
Investment Options and Futures	(0.6		)	(0.8		)
LIBOR Swap	(0.6		)	(0.2		)
Outward ILW Swap	—			(0.1		)
Inward ILW Swaps	0.1			0.1
Net loss from derivative instruments	$	(3.5	)	$	(5.1	)

A description of each of Montpelier’s derivative instrument activities follows:

Foreign Exchange Contracts

From time to time Montpelier, either directly through its investment managers or otherwise, enters into foreign currency agreements which constitute obligations to buy or sell specified currencies at future dates at prices set at the inception of each contract. Montpelier enters into these agreements in connection with both its underwriting and investing activities.

Foreign Exchange Contracts designed to protect Montpelier’s insurance and reinsurance balances against movements in foreign currency exchange rates do not eliminate fluctuations in the actual value of Montpelier’s assets and liabilities denominated in foreign currencies; rather, they provide an offsetting benefit or detriment against such exchange rate movements. Foreign Exchange Contracts related to Montpelier’s investing activities are designed to either protect Montpelier’s cash and invested assets from movements in foreign currency exchange rates or to enhance Montpelier’s investment performance.

The fair value of the Foreign Exchange Contracts is derived based on other observable (Level 2) inputs.

Credit Derivatives

From time to time Montpelier’s investment managers enter into various credit derivative instruments in the form of either: (i) index positions; or (ii) instruments whose values are derived from the credit risk associated with underlying bonds, loans or other financial instruments. In such transactions, Montpelier is effectively the buyer or seller of credit protection, depending on the specific instrument. When Montpelier is buying credit protection, the value of its derivative position increases (or decreases) when the associated credit risk of the instrument increases (or decreases). Conversely, when Montpelier is selling credit protection, the value of its derivative position decreases (or increases) when the associated credit risk of the instrument increases (or decreases).

The fair value of the Credit Derivatives is derived based on other observable (Level 2) inputs.

Interest Rate Contracts

From time to time Montpelier’s investment managers enter into various interest rate derivative instruments whose value is based on the right to pay or receive a notional amount of money at a given interest rate. These instruments are either used to limit Montpelier’s exposure to fluctuations in specified interest rates or to address an anticipated change in interest rates.

The fair value of the Interest Rate Contracts is derived based on other observable (Level 2) inputs.

Investment Options and Futures

From time to time Montpelier enters into various exchange-traded investment options and futures as part of its investing strategy.

The fair value of the Investment Options and Futures was derived based on other observable (Level 2) inputs.

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Outward ILW Swap

From time to time Montpelier enters into various Outward ILW swaps, whose values are based on the right to receive a floating, notional payment in the event of certain losses incurred by the insurance industry as a whole, rather than by losses incurred by Montpelier. The Outward ILW Swap, which was in force during the three month period ended March 31, 2014, provided protection against Syndicate 5151’s construction and engineering exposures. Montpelier is not aware of any industry loss events occurring during the periods presented that would have triggered any payments to Montpelier under the Outward ILW Swap.

There were no Outward ILW Swaps in force at March 31, 2015 and December 31, 2014.

Inward ILW Swaps

From time to time Montpelier enters into various Inward ILW swaps, whose values are based on the right to receive a floating, notional payment in the event of certain losses incurred by the insurance industry as a whole, rather than by losses incurred by Montpelier. The Inward ILW Swaps in force during the three month periods ended March 31, 2015 and 2014 provide a third party with protection against losses incurred from specified natural catastrophes in the U.S., Europe, Japan, Australia and New Zealand.

Montpelier is not aware of any industry loss event occurring that would have triggered a payment obligation under any of the Inward ILW Swaps during the periods presented.

The fair value of Inward ILW Swaps in force at March 31, 2015 is derived based on unobservable (Level 3) inputs.

There were no Inward ILW Swaps in force at December 31, 2014.

NOTE 7. Shareholders’ Equity

The Company’s share capital consists of Preferred Shares and Common Shares, each with a 1/6 cent par value per share. Holders of Preferred Shares have no voting rights with respect to matters that generally require the approval of voting shareholders but are entitled to vote in certain extraordinary instances. Holders of Common Shares are entitled to one vote for each share held, subject to any voting limitations imposed by the Company’s Bye-Laws.

Preferred Shares

As of March 31, 2015 and December 31, 2014, there were 6.0 million Preferred Shares outstanding with a liquidation preference of $25.00 per share representing $150.0 million in face value. The Preferred Shares have no stated maturity, are not subject to any sinking fund or mandatory redemption and are not convertible into any other securities. Except in certain limited circumstances, the Preferred Shares are not redeemable prior to May 10, 2016. After that date, the Company may redeem at its option, in whole or in part, the Preferred Shares at a price of $25.00 per share plus any declared and unpaid dividends.

In connection with the Merger, and as outlined in the Merger Agreement, the Company intends to exercise its option to redeem all of the Preferred Shares in accordance with the Certificate of Designation of the Preferred Shares, at a price of $26.00 per share plus declared and unpaid dividends, if any, to the date of the redemption.

Dividends on Preferred Shares are non-cumulative. Consequently, holders of Preferred Shares will be entitled to receive cash dividends only when, as and if declared by the Company’s Board of Directors (the “Board”) or by a duly authorized committee of the Board, quarterly in arrears on the 15th day of January, April, July and October of each year. These dividends will accrue with respect to a particular dividend period, on the liquidation preference amount of $25.00 per share at an annual rate of 8.875%. So long as any Preferred Shares remain outstanding, no dividend shall be paid or declared on Common Shares or any other securities ranking junior to Preferred Shares (other than a dividend payable solely in Common Shares or in other junior securities), unless the full dividend for the latest completed dividend period on all outstanding Preferred Shares has been declared and paid or otherwise provided for.

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Common Shares

The following table summarizes the Company’s Common Share activities during the three month periods ended March 31, 2015 and 2014:

	Three Month Periods Ended March 31,
(in Common Shares)	2015	2014
Beginning Common Shares outstanding	43,619,124	49,274,165
Acquisitions of Common Shares:
Common Shares repurchased and retired	—	(2,353,785	)
Common Shares repurchased and placed in treasury	—	(138,900	)
Issuances of Common Shares:
Issuances in satisfaction of vested Restricted Share Unit (“RSU”) obligations	180,129	236,378
Ending Common Shares outstanding	43,799,253	47,017,858

As of March 31, 2015, the Company had 43,799,253 Common Shares outstanding consisting of 45,113,841 Common Shares issued less 1,314,588 Common Shares held in treasury. As of December 31, 2014, the Company had 43,619,124 Common Shares outstanding consisting of 45,113,841 Common Shares issued less 1,494,717 Common Shares held in treasury.

2015 Common Share activity

The Company did not repurchase any Common Shares during three month period ended March 31, 2015.

The Company issued 180,129 Common Shares in satisfaction of vested RSU obligations during the first three months of 2015. See Note 12. The Common Shares were issued from the Company’s treasury resulting in a net loss on issuance of $0.5 million, which was recorded as a decrease to retained earnings.

2014 Common Share activity

The Company repurchased 2,492,685 Common Shares during the first quarter of 2014 pursuant to a publicly announced share repurchase program at an average price of $28.22 per share. Of these Common Shares repurchased during the first quarter of 2014, 2,353,785 Common Shares were retired and 138,900 Common Shares were placed in the Company’s treasury for re-issuance to employees and directors in satisfaction of existing and future share-based obligations.

The Company issued 236,378 Common Shares in satisfaction of vested RSU obligations during the first quarter of 2014. See Note 12. The Common Shares were issued from the Company’s treasury resulting in a gain on issuance of $1.0 million, which was recorded as an increase to retained earnings.

Common Share Repurchase Authorization

As of March 31, 2015, the Company had a remaining Common Share repurchase authorization of $281.7 million. Common Shares may be purchased in the open market or through privately negotiated transactions. There is no stated expiration date associated with the Company’s Common Share repurchase authorization.

Dividends Declared and Paid

The Company declared cash dividends per Common Share and RSU of $0.20 and $0.125 during the three month periods ended March 31, 2015 and 2014, respectively. The total amount of dividends paid to holders of Common Shares and RSUs during the three month periods ended March 31, 2015 and 2014 was $8.9 million and $6.2 million, respectively. As of March 31, 2015 and December 31, 2014, the Company had $9.0 million and $8.9 million, respectively, of dividends payable to holders of Common Shares and RSUs.

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The Company declared cash dividends per Preferred Share totaling $0.5547 during each of the three month periods ended March 31, 2015 and 2014, respectively. As of March 31, 2015 and December 31, 2014, the Company had $3.3 million of dividends payable to holders of Preferred Shares.

Dividends payable are included within accounts payable, accrued expenses and other liabilities on the Company’s Consolidated Balance Sheets.

NOTE 8. Segment Reporting

The Company currently operates through three reportable segments: Montpelier Bermuda, Montpelier at Lloyd’s, and Collateralized Reinsurance. Each segment constitutes a separate underwriting platform through which Montpelier writes insurance and reinsurance business. The Company’s segment disclosures present the operations of these underwriting platforms prior to the effects of any inter-segment quota share reinsurance agreements among them.

The Company has made its segment determination based on consideration of the following criteria: (i) the nature of the business activities of each of the Company’s subsidiaries and affiliates; (ii) the manner in which the Company’s subsidiaries and affiliates are organized; and (iii) the organization of information provided to the Board and senior management.

The Company and certain intermediate holding and service companies, intercompany eliminations relating to inter-segment reinsurance agreements and the MUSIC Run-off business are collectively referred to as “Corporate and Other.”

The following table summarizes Montpelier’s total assets by segment as of March 31, 2015 and December 31, 2014:

	March 31, 2015		December 31, 2014

Montpelier Bermuda	$	2,895.7	$	2,550.0
Montpelier at Lloyd’s	576.1		573.5
Collateralized Reinsurance	492.3		476.1
Corporate and Other, including inter-segment eliminations	28.8		29.5

Total assets	$	3,992.9	$	3,629.1

A summary of Montpelier’s consolidated statements of operations by segment for the three month periods ended March 31, 2015 and 2014 follows:

Three Month Period Ended March 31, 2015	Montpelier Bermuda			Montpelier at Lloyd’s			Collateralized Reinsurance			Corporate and Other			Total

Gross premiums written	$	152.6		$	77.5		$	34.5		$	(11.2	)	$	253.4
Ceded reinsurance premiums	(43.6		)	(15.8		)	—			11.2			(48.2		)
Net premiums written	109.0			61.7			34.5			—			205.2
Change in net unearned premiums	(40.9		)	(1.9		)	(11.7		)	—			(54.5		)
Net premiums earned	68.1			59.8			22.8			—			150.7

Loss and LAE	(0.9		)	(42.2		)	(2.2		)	(2.4		)	(47.7		)
Acquisition costs	(7.0		)	(15.9		)	(4.7		)	—			(27.6		)
General and administrative expenses	(9.7		)	(9.1		)	(1.5		)	(8.6		)	(28.9		)
Underwriting income	50.5			(7.4		)	14.4			(11.0		)	46.5
Net investment income	8.2			1.0			0.1			0.5			9.8
Other revenues and expenses (net)	(0.2		)	—			(0.1		)	(3.1		)	(3.4		)
Net investment and foreign currency gains	4.8			15.2			(0.1		)	0.1			20.0
Net losses from derivative instruments	(2.9		)	—			0.1			(0.7		)	(3.5		)
Interest and other financing expenses	—			—			—			(4.7		)	(4.7		)
Income before income taxes	$	60.4		$	8.8		$	14.4		$	(18.9	)	$	64.7

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Three Month Period Ended March 31, 2014	Montpelier Bermuda			Montpelier at Lloyd’s			Collateralized Reinsurance			Corporate and Other			Total

Gross premiums written	$	173.9		$	74.1		$	34.0		$	(8.5	)	$	273.5
Ceded reinsurance premiums	(36.2		)	(8.7		)	—			8.5			(36.4		)
Net premiums written	137.7			65.4			34.0			—			237.1
Change in net unearned premiums	(57.4		)	(9.3		)	(13.6		)	—			(80.3		)
Net premiums earned	80.3			56.1			20.4			—			156.8

Loss and LAE	0.1			(26.7		)	(0.8		)	—			(27.4		)
Acquisition costs	(8.1		)	(12.9		)	(3.8		)	—			(24.8		)
General and administrative expenses	(8.7		)	(8.8		)	(1.5		)	(7.8		)	(26.8		)
Underwriting income	63.6			7.7			14.3			(7.8		)	77.8
Net investment income	11.4			1.1			0.1			0.3			12.9
Other revenues and expenses (net)	—			—			—			0.3			0.3
Net investment and foreign exchange gains	23.8			(2.7		)	—			(0.2		)	20.9
Net loss from derivative instruments	(5.0		)	(0.1		)	0.1			(0.1		)	(5.1		)
Interest and other financing expenses	—			—			—			(4.7		)	(4.7		)
Income before income taxes	$	93.8		$	6.0		$	14.5		$	(12.2	)	$	102.1

Gross Written Premiums By Line of Business and Geography

The following tables present Montpelier’s gross premiums written, by line of business and reportable segment, during the three month periods ended March 31, 2015 and 2014:

Three Month Period Ended March 31, 2015	Montpelier Bermuda		Montpelier at Lloyd’s		Collateralized Reinsurance		Corporate and Other (1)			Total

Property Catastrophe - Treaty	$	107.4	$	1.3	$	34.5	$	(11.4	)	$	131.8
Property Specialty - Treaty	15.0		0.9		—		—			15.9
Other Specialty - Treaty	24.7		21.4		—		0.2			46.3
Property and Specialty Individual Risk	5.5		53.9		—		—			59.4
Total gross premiums written	$	152.6	$	77.5	$	34.5	$	(11.2	)	$	253.4

Three Month Period Ended March 31, 2014	Montpelier Bermuda		Montpelier at Lloyd’s		Collateralized Reinsurance		Corporate and Other (1)			Total

Property Catastrophe - Treaty	$	120.9	$	2.9	$	34.0	$	(8.1	)	$	149.7
Property Specialty - Treaty	17.6		1.3		—		—			18.9
Other Specialty - Treaty	28.4		21.6		—		(0.4		)	49.6
Property and Specialty Individual Risk	7.0		48.3		—		—			55.3
Total gross premiums written	$	173.9	$	74.1	$	34.0	$	(8.5	)	$	273.5

(1) Represents: (i) the elimination of inter-segment reinsurance arrangements between Montpelier Bermuda and Montpelier at Lloyd’s and (ii) the elimination of inter-segment reinsurance arrangements between Montpelier Bermuda and Collateralized Reinsurance.

Montpelier seeks to diversify its exposures across geographic zones around the world in order to obtain a prudent spread of risk. The spread of these exposures is also a function of market conditions and opportunities.

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Montpelier monitors its geographic exposures on a company-wide basis, rather than by segment. The following table sets forth a breakdown of Montpelier’s gross premiums written by geographic area of risks insured:

	Three Month Periods Ended March 31,
	2015				2014

U.S. and Canada	$	110.4	44	%	$	116.2	42	%
Worldwide (1)	68.4		27		92.7		34
Worldwide, excluding U.S. and Canada (2)	23.9		9		11.0		4
Western Europe, excluding the U.K. and Ireland	21.4		9		27.3		10
U.K. and Ireland	8.1		3		9.3		3
Australia and Oceania	5.1		2		6.0		2
Japan	2.6		1		1.8		1
Other	13.5		5		9.2		4
Total gross premiums written	$	253.4	100	%	$	273.5	100	%

(1) “Worldwide” comprises insurance and reinsurance contracts that insure or reinsure risks in more than one geographic area and do not specifically exclude the U.S. and Canada.

(2) “Worldwide, excluding U.S. and Canada” comprises insurance and reinsurance contracts that insure or reinsure risks in more than one geographic area but specifically exclude the U.S. and Canada.

Net Earned Premiums By Line of Business and Geography

The following tables present Montpelier’s net earned premiums, by line of business and reportable segment, during the three month periods ended March 31, 2015 and 2014:

Three Month Period Ended March 31, 2015	Montpelier Bermuda		Montpelier at Lloyd’s		Collateralized Reinsurance		Corporate and Other (1)		Total

Property Catastrophe - Treaty	$	33.2	$	1.1	$	22.8	$	—	$	57.1
Property Specialty - Treaty	12.8		0.8		—		—		13.6
Other Specialty - Treaty	17.0		21.5		—		—		38.5
Property and Specialty Individual Risk	5.1		36.4		—		—		41.5
Total net earned premiums	$	68.1	$	59.8	$	22.8	$	—	$	150.7

Three Month Period Ended March 31, 2014	Montpelier Bermuda		Montpelier at Lloyd’s		Collateralized Reinsurance		Corporate and Other (1)			Total

Property Catastrophe - Treaty	$	46.7	$	1.0	$	20.4	$	(0.2	)	$	67.9
Property Specialty - Treaty	13.3		1.0		—		—			14.3
Other Specialty - Treaty	14.8		21.0		—		—			35.8
Property and Specialty Individual Risk	5.5		33.1		—		0.2			38.8
Total net earned premiums	$	80.3	$	56.1	$	20.4	$	—		$	156.8

(1) Represents the elimination of inter-segment reinsurance arrangements between Montpelier Bermuda and Montpelier at Lloyd’s.

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The following table sets forth a breakdown of Montpelier’s net earned premiums by geographic area of risks insured:

	Three Month Periods Ended March 31,
	2015				2014

U.S. and Canada	$	79.5	53	%	$	84.1	54	%
Worldwide (1)	36.5		24		40.7		26
Worldwide, excluding U.S. and Canada (2)	7.4		5		4.2		3
Western Europe, excluding the U.K. and Ireland	7.3		5		9.2		6
Australia and Oceania	5.1		3		4.0		2
Japan	4.0		3		5.4		3
U.K. and Ireland	3.8		2		4.7		3
Other	7.1		5		4.5		3
Total net earned premiums	$	150.7	100	%	$	156.8	100	%

(1) “Worldwide” comprises insurance and reinsurance contracts that insure or reinsure risks in more than one geographic area and do not specifically exclude the U.S. and Canada.

NOTE 9. Basic and Diluted Earnings Per Common Share

The Company applies the two-class method of calculating its earnings per Common Share. In applying the two-class method, the Company’s outstanding RSUs are considered to be participating securities. See Note 12. For all periods presented, the two-class method was used to determine basic and diluted earnings per Common Share since this method yielded a more dilutive result than the treasury stock method.

For purposes of determining basic and diluted earnings per Common Share, a portion of net income is allocated to outstanding RSUs which serves to reduce the Company’s earnings per Common Share numerators.

The following table outlines the Company’s computation of its basic and diluted earnings per Common Share for the three month periods ended March 31, 2015 and 2014:

	Three Month Periods Ended March 31,
	2015			2014

Net income available to the Company’s common shareholders	$	52.1		$	89.9
Less: net earnings allocated to participating securities	(1.9		)	(2.7		)
Earnings per Common Share numerator	$	50.2		$	87.2

Average Common Shares outstanding (in millions)	43.7			47.4

Basic and diluted earnings per Common Share	$	1.15		$	1.84

NOTE 10. Commitments and Contingent Liabilities

Commitments

As of March 31, 2015, Montpelier had unfunded commitments to invest: (i) $7.9 million into a private investment fund; and (ii) up to $4.0 million into a private placement fixed maturity investment.

Montpelier’s letter of credit facilities and trust arrangements are secured by collateral accounts containing cash, cash equivalents and investments that are required to be maintained at specified levels. See Note 5.

Montpelier has various other operating lease obligations that are immaterial in the aggregate.

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BCRH and/or its subsidiaries are parties to the Investment Management Agreement, the Underwriting and Insurance Management Agreement and the Administrative Services Agreement. See Note 14.

Lloyd’s New Central Fund

The Lloyd’s New Central Fund is available to satisfy claims if a member of Lloyd’s is unable to meet its obligations to policyholders. The Lloyd’s New Central Fund is funded by an annual levy imposed on members which is determined annually by Lloyd’s as a percentage of each member’s written premiums (0.5% with respect to 2015 and 2014). In addition, the Council of Lloyd’s has power to call on members to make an additional contribution to the Lloyd’s New Central Fund of up to 3.0% of their underwriting capacity each year should it decide that such additional contributions are necessary. Montpelier currently estimates that its 2015 obligation to the Lloyd’s New Central Fund will be approximately $1.1 million and accrues for this obligation ratably throughout the year on a quarterly basis.

Lloyd’s also imposes other charges on its members and the syndicates on which they participate, including an annual subscription charge (0.5% of written premiums with respect to 2015 and 2014) and an overseas business charge, levied as a percentage of gross international premiums (defined as business outside the U.K. and the Channel Islands), with the percentage depending on the type of business written. Lloyd’s also has power to impose additional charges under Lloyd’s Powers of Charging Byelaw. Montpelier currently estimates that its 2015 obligation to Lloyd’s for such charges will be approximately $1.3 million and accrues for this obligation ratably throughout the year on a quarterly basis.

Litigation

Montpelier is subject to litigation and arbitration proceedings in the normal course of its business. Such proceedings often involve insurance or reinsurance contract disputes which are typical for the insurance and reinsurance industry. Montpelier’s estimates of possible losses incurred in connection with such legal proceedings are provided for as loss and loss adjustment expenses on its Consolidated Statements of Operations and Comprehensive Income and are included within loss and loss adjustment expense reserves on its Consolidated Balance Sheets.

During 2011, Montpelier Re was named in a series of lawsuits filed by a group of plaintiffs in their capacity as trustees for senior debt issued by Tribune on behalf of various senior debt holders. See Note 4.

Other than the Tribune litigation referred to above, Montpelier had no other unresolved legal proceedings, other than those in the normal course of its business, at March 31, 2015.

Concentrations of Credit and Counterparty Risk

Financial instruments which potentially subject Montpelier to significant concentrations of credit risk consist principally of investment securities, insurance and reinsurance balances receivable and reinsurance recoverables as described below.

Montpelier’s investment guidelines prohibit it from owning an undue concentration of a single issue or issuer, other than U.S.-backed securities, and it did not own an aggregate fixed maturity investment in a single entity, other than securities issued by the U.S. government and U.S. government-sponsored enterprises, in excess of 10% of the Company’s common shareholders’ equity at March 31, 2015 or December 31, 2014.

In accordance with its investment controls and guidelines, Montpelier routinely monitors the credit quality of its fixed maturity investments, including those involving investments in: (i) European sovereign nations; (ii) U.S. state and local municipalities, Alternative A, subprime and commercial mortgage-backed securities; (iii) non-agency collateralized residential mortgage obligations; and (iv) those securities that benefit from credit enhancements provided by third-party financial guarantors.

Montpelier’s derivative instruments are subject to counterparty risk. Montpelier routinely monitors this risk in accordance with the Company’s Derivative Use Plan.

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Montpelier underwrites the majority of its business through independent insurance and reinsurance brokers. Credit risk exists to the extent that any of these brokers may be unable to fulfill their contractual obligations to Montpelier. For example, Montpelier is frequently required to pay amounts owed on claims under policies to brokers, and these brokers, in turn, pay these amounts to the ceding companies that have reinsured a portion of their liabilities with Montpelier. In some jurisdictions, if a broker fails to make such a payment, Montpelier might remain liable to the ceding company for the deficiency. In addition, in certain jurisdictions, when the ceding company pays premiums for these policies to brokers, these premiums are considered to have been paid and the ceding insurer is no longer liable to Montpelier for those amounts, whether or not the premiums have actually been received.

Under Montpelier’s reinsurance security policy, reinsurers are typically required to be rated “A-” (Excellent) or better by A.M. Best (or an equivalent rating with another recognized rating agency) at the time the policy is written. Montpelier also considers reinsurers that are not rated or do not fall within this threshold on a case-by-case basis if collateralized up to policy limits, net of any premiums owed. Montpelier monitors the financial condition and ratings of its reinsurers on an ongoing basis.

NOTE 11. Regulation and Capital Requirements

Insurance and reinsurance entities are highly regulated in most countries, although the degree and type of regulation varies significantly from one jurisdiction to another with reinsurers generally subject to less regulation than primary insurers. The Company, Montpelier Re, Blue Water Re, Blue Capital Re, Blue Capital Re ILS and BCML are regulated by the Bermuda Monetary Authority (the “BMA”). MAL is subject to regulation by the Prudential Regulation Authority (the “PRA”) and the Financial Conduct Authority (the “FCA”), each is a successor to the former U.K. Financial Services Authority. MAL and MCL are regulated by Lloyd’s. MUI is subject to approval by Lloyd’s as a Coverholder for Syndicate 5151.

Bermuda

Montpelier Re

Montpelier Re is registered under The Insurance Act 1978 of Bermuda and related regulations, as amended (the “Insurance Act”) as a Class 4 insurer. Under the Insurance Act, Class 4 insurers are required to annually prepare and file statutory and GAAP financial statements and a statutory financial return. The Insurance Act also requires Montpelier Re to maintain minimum levels of statutory net assets (“Statutory Capital and Surplus”), to maintain minimum liquidity ratios and to meet minimum solvency margins. Failure to meet such requirements may subject an entity to regulatory actions by the BMA. For all periods presented herein, Montpelier Re believes that it has satisfied these requirements.

The Bermuda risk-based regulatory capital adequacy and solvency requirements implemented with effect from December 31, 2008 (termed the Bermuda Solvency Capital Requirement or “BSCR”), provide a risk-based capital model as a tool to assist the BMA both in measuring risk and in determining appropriate levels of capitalization. The BSCR employs a standard mathematical model that correlates the risk underwritten by Bermuda insurers and reinsurers to the capital that is dedicated to their business. The framework that has been developed applies a standard measurement format to the risk associated with an insurer’s or reinsurer’s assets, liabilities and premiums, including a formula to take account of the catastrophe risk exposure. Montpelier Re is only required to supply its BSCR annually, which is due to the BMA on or before April 30.

As of December 31, 2014, Montpelier Re’s Statutory Capital and Surplus was $1,819.2 million. The principal differences between Montpelier Re’s Statutory Capital and Surplus and its net assets determined in accordance with GAAP include statutory deductions for deferred acquisition costs, fixed assets and investment securities held in trust for the benefit of MCL through the Lloyd’s Capital Trust. Such differences totaled $237.4 million at December 31, 2014.

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For the year ended December 31, 2014, Montpelier Re’s Statutory Capital and Surplus of $1,819.2 million exceeded its 2014 BSCR of $543.3 million. Montpelier Re’s 2014 statutory net income was $270.5 million.

Where an insurer or reinsurer believes that its own means of measuring risk and determining appropriate levels of capital better reflects the inherent risk of its business, it may apply to the BMA for approval to use its internal capital model in substitution for the BSCR model. Montpelier Re may apply to the BMA for approval to use its internal capital model in substitution for the BSCR model, but has not yet done so.

The Insurance Act limits the maximum amount of annual dividends and distributions that may be paid by Montpelier Re. The declaration of dividends in any year which would exceed 25% of its prior year-end Statutory Capital and Surplus requires the approval of the BMA. With respect to the year ending December 31, 2015, Montpelier Re has the ability to dividend up to $454.8 million without BMA approval. During the three month period ended March 31, 2015, Montpelier Re did not declare or pay any dividends to its parent.

The Insurance Act also limits the maximum amount of annual distributions that may be paid by Montpelier Re. Montpelier Re may not reduce its total capital by 15% or more, as set out in its previous year’s financial statements, unless it has received the prior approval of the BMA. Total capital consists of the insurer’s paid in share capital, its contributed surplus (sometimes called additional paid in capital) and any other fixed capital designated by the BMA as capital. With respect to the year ending December 31, 2015, Montpelier Re has the ability to distribute up to $233.9 million to its parent without BMA approval.

During the three month period ended March 31, 2015, Montpelier Re did not declare or pay any dividends or distributions to its parent.

The Insurance Act also provides a minimum liquidity ratio and requires general business insurers and reinsurers to maintain the value of their relevant assets at not less than 75% of the amount of their relevant liabilities. Montpelier Re exceeded its minimum liquidity requirements at December 31, 2014 by $1,663.4 million.

Blue Water Re

Blue Water Re is registered with the BMA as a Special Purpose Insurer, meaning that its contracts must be fully-collateralized and the parties to the transactions must be sophisticated.

Special Purpose Insurers benefit from an expedited application process, less regulatory stringency and minimal capital and surplus requirements.

Blue Water Re is required to notify the BMA of each reinsurance contract it writes. Blue Water Re, however, is not required to prepare and file statutory financial statements or statutory financial returns annually with the BMA, although it is required to prepare and file annual audited GAAP financial statements with the BMA.

Blue Water Re is not subject to the BMA’s BSCR requirements. However, the Insurance Act limits the maximum amount of annual dividends and distributions that may be paid by Blue Water Re. If Blue Water Re were to fail to meet its minimum solvency margin on the last day of any financial year, it would be prohibited from declaring or paying any dividends during the next financial year without the approval of the BMA.

There is no minimum solvency margin or liquidity ratio that must be maintained by Blue Water Re so long as the value of its GAAP assets exceed the value of its GAAP liabilities.

As of March 31, 2015, Blue Water Re’s assets exceeded the value of its liabilities by $248.0 million. Blue Water Re did not declare or pay any dividends to its parent during the first quarter of 2015.

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Blue Capital Re

Blue Capital Re is registered under The Insurance Act as a Class 3A insurer. Class 3A insurers benefit from an expedited application process, less regulatory stringency and minimal capital and surplus requirements. The Insurance Act also requires Blue Capital Re to maintain minimum levels of Statutory Capital and Surplus to maintain minimum liquidity ratios and to meet minimum solvency margins. As a result of the approvals received from the BMA and the terms of Blue Capital Re’s business plan, Blue Capital Re’s reinsurance contracts must be fully-collateralized. While Blue Capital Re is not required to prepare and file statutory financial statements or statutory financial returns annually with the BMA, Blue Capital Re is required to prepare and file annual audited GAAP financial statements with the BMA.

The Insurance Act limits the maximum amount of annual dividends and distributions that may be paid by Blue Capital Re. The payment of dividends in any year which would exceed 25% of its prior year-end Statutory Capital and Surplus requires the approval of the BMA. Also, if Blue Capital Re were to fail to meet its minimum solvency margin on the last day of any financial year, it would be prohibited from declaring or paying any dividends during the next financial year without the approval of the BMA. Blue Capital Re’s minimum solvency margin has been set by the BMA to be $1.0 million at all times, so long as: (i) Blue Capital Re only enters into contracts of reinsurance that are fully collateralized; and (ii) each transaction represents no material deviation from the original business plan filed with BMA at the time of Blue Capital Re’s registration. With respect to the year ending December 31, 2015, Blue Capital Re has the ability to dividend up to $46.3 million to its parent without BMA approval.

The Insurance Act also limits the maximum amount of annual distributions that may be paid by Blue Capital Re. Blue Capital Re may not reduce its total capital by 15% or more, as set out in its previous year’s financial statements, unless it has received the prior approval of the BMA. Total capital consists of the insurer’s paid in share capital, its contributed surplus (sometimes called additional paid in capital) and any other fixed capital designated by the BMA as capital. With respect to the year ending December 31, 2015, Blue Capital Re has the ability to distribute up to $24.9 million to its parent without BMA approval.

During the three month period ended March 31, 2015, Blue Capital Re did not declare or pay any dividends or distributions to its parent.

The Insurance Act further provides a minimum liquidity ratio and requires general business insurers and reinsurers to maintain the value of their relevant assets at not less than 75% of the amount of their relevant liabilities. Blue Capital Re exceeded its minimum liquidity requirements at March 31, 2015 by $196.4 million.

BCML

BCML is licensed and supervised by the BMA: (i) to carry on investment business; and (ii) as an insurance agent/manager. BCML is not subject to any material minimum solvency requirements.

Montpelier Group

The BMA serves as Montpelier’s group supervisor. In this instance, an “insurance group” is defined as a group of companies that conducts insurance business.

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Where the BMA determines that it should act as the group supervisor, it shall designate a specified insurer that is a member of the insurance group to be the designated insurer in respect of that insurance group for the purposes of the Insurance Act (the “Designated Insurer”) and it shall give to the Designated Insurer and other competent authorities written notice of its intention to act as group supervisor. Once the BMA has been designated as group supervisor, the Designated Insurer must ensure that an approved group actuary is appointed to provide an opinion as to the adequacy of the insurance group’s insurance reserves as reported in its group statutory financial statements. Montpelier Re has been designated by the BMA to act as Montpelier’s Designated Insurer.

As group supervisor, the BMA performs a number of supervisory functions including: (i) coordinating the gathering and dissemination of information which is of importance for the supervisory task of other competent authorities; (ii) carrying out a supervisory review and assessment of the insurance group; (iii) carrying out an assessment of the insurance group’s compliance with the rules on solvency, risk concentration, intra-group transactions and good governance procedures as may be prescribed by or under the Insurance Act; (iv) planning and coordinating through regular meetings held at least annually or by other appropriate means with other competent authorities, supervisory activities in respect of the insurance group, both as a going concern and in emergency situations; (v) coordinating any enforcement action that may need to be taken against the insurance group or any of its members; and (vi) planning and coordinating meetings of colleges of supervisors (consisting of insurance regulators) to be clarified by the BMA in order to facilitate the carrying out of the functions described above.

In carrying out its group supervisor functions, the BMA may make rules for: (i) assessing the financial situation and the solvency position of the insurance group and its members; and (ii) regulating intra-group transactions, risk concentration, governance procedures, risk management and regulatory reporting and disclosure.

Other international supervisory authorities are not, at the current time, under any obligation to accept or otherwise rely on the BMA’s determination that it is acting as group supervisor, rather the BMA’s decision defines the scope and extent of the BMA’s interest in Montpelier’s operations group-wide.

The Bermuda Companies Act 1981 (the “Companies Act”)

The Companies Act also limits the Company’s, BCRH’s, Montpelier Re’s, Blue Water Re’s, Blue Capital Re’s and Blue Capital Re ILS’ ability to pay dividends and/or make distributions to their shareholders in that none of the Company, BCRH, Montpelier Re, Blue Water Re, Blue Water Re II, Blue Capital Re or Blue Capital Re ILS is permitted to declare or pay a dividend or make a distribution out of its contributed surplus, if it is, or would after the payment be, unable to pay its liabilities as they become due or if the realizable value of its assets would be less than its liabilities.

U.K.

Montpelier participates in the Lloyd’s market through Syndicate 5151, which is managed by MAL and is capitalized through MCL. MAL is regulated by the PRA and the FCA and is also subject to the oversight of the Council of Lloyd’s.

The PRA, which is a subsidiary of the Bank of England, is responsible for promoting the stable and prudent operation of the U.K. financial system through regulation of all deposit-taking institutions, insurers, Lloyd’s managing agents and investment banks. The PRA has the responsibility for promoting the safety and soundness of Lloyd’s and its members taken together, including the Lloyd’s New Central Fund, and the prudential regulation of managing agents.

The FCA is responsible for regulation of conduct in financial markets and the infrastructure that supports those markets. The FCA also has responsibility for the prudential regulation of firms that do not fall under the PRA’s scope. The FCA regulates Lloyd’s and its managing agents and, on a prudential and conduct basis, its members’ agents, advisors and brokers. Particular conduct issues include the management of the auction whereby members can buy and sell syndicate capacity and the handling of policyholders’ complaints.

The PRA and the FCA form a supervisory college for Lloyd’s and maintain cooperation arrangements with Lloyd’s in support of their activities. They also have powers of direction over Lloyd’s and consult with each other in the exercise of such powers.

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The Council of Lloyd’s is responsible under the Lloyd’s Act 1982 for the management and supervision of Lloyd’s, including its members, syndicates and managing agents, and has rule-making and enforcement powers. The Council of Lloyd’s may discharge some of its functions directly by making decisions and issuing resolutions, requirements, rules and byelaws. Other decisions are delegated to the Lloyd’s Franchise Board and associated committees. The PRA and FCA, when relevant, coordinate with each other and Lloyd’s over its use of enforcement powers.

MAL, as a Lloyd’s Managing Agent, is subject to capital requirements and minimum solvency tests established by Lloyd’s and the PRA. MAL’s statutory net assets, as reported to Lloyd’s as of December 31, 2014, totaled $1.1 million. MAL’s restricted net assets (the amount of its statutory net assets that were not available to dividend or distribute to its parent without Lloyd’s approval) at December 31, 2014 totaled $0.8 million. Any amount of MAL’s statutory net assets in excess of its net restricted assets may be distributed to its parent without Lloyd’s approval.

MCL, Syndicate 5151’s corporate underwriting member at Lloyd’s, provides 100% of the stamp capacity of Syndicate 5151. Stamp capacity is a measure of the amount of premium a syndicate is authorized to write by Lloyd’s. Syndicate 5151’s stamp capacity for 2015 is £180 million.

As the corporate underwriting member of Lloyd’s, MCL is bound by the rules of Lloyd’s, which are prescribed by Byelaws and Requirements made by the Council of Lloyd’s under powers conferred by the Lloyd’s Act 1982. These rules, among other matters, prescribe MCL’s membership subscription, the level of its contribution to the Lloyd’s New Central Fund and the assets it must deposit with Lloyd’s in support of its underwriting. The Council of Lloyd’s has broad powers to sanction breaches of its rules, including the power to restrict or prohibit a member’s participation in Lloyd’s syndicates.

At the syndicate level, managing agents are required to calculate the capital resources requirement of the members of each syndicate they manage. In the case of Syndicate 5151’s underwriting years of account prior to 2013, MAL carried out a syndicate Individual Capital Assessment (“ICA”) according to detailed rules prescribed by the PRA under the Individual Capital Adequacy Standards regime in force. In the case of Syndicate 5151’s subsequent underwriting years of account, MAL carried out a Solvency Capital Requirement (“SCR”) assessment in addition to the ICA, utilizing the Syndicate’s own internal model according to Solvency II principles, which was subsequently reconciled to the ICA.

Both the ICA and SCR evaluate the risks faced by the syndicate, including insurance, operational, market, credit, liquidity and group risks, and assess the amount of capital that syndicate members should hold against those risks.

Lloyd’s reviews each syndicate’s SCR annually and may challenge it. In order to ensure that Lloyd’s aggregate capital is maintained at a high enough level to support its overall security rating, Lloyd’s adds an uplift to the overall market capital resources requirement produced by the SCR, and each syndicate is allocated its proportion of the uplift. The aggregate amount is known as a syndicate’s Economic Capital Assessment, which is used by Lloyd’s to determine the syndicate’s required FAL.

MCL is required to deposit cash, securities or letters of credit (or a combination of these assets) with Lloyd’s in order to satisfy its FAL requirements, which are met through the Lloyd’s Capital Trust. The assets held in the Lloyd’s Capital Trust are provided by Montpelier Re.

MCL’s combined statutory net assets of $212.8 million at December 31, 2014, which consist of the assets held in the Lloyd’s Capital Trust, exceeded MCL’s restricted net assets (the amount of its combined statutory net assets that were not available to dividend or distribute to its parent without Lloyd’s approval) of $194.0 million at such date. Any amount of MCL’s combined statutory net assets in excess of its restricted net assets may be distributed to its parent, subject to passing a Lloyd’s release test.

Premiums received by Syndicate 5151 are received into the Premiums Trust Funds. Under the Premiums Trust Funds’ deeds, assets may only be used for the payment of claims and valid expenses. Profits held within the Premiums Trust Funds, including investment income earned thereon, may be distributed to MCL annually, subject to meeting Lloyd’s requirements. Premiums Trust Fund assets not required to meet cash calls and/or loss payments may also be used towards MCL’s ongoing capital requirements. Upon the closing of an open underwriting year, normally after three years, all undistributed profits held within the Premiums Trust Funds applicable to the closed underwriting year may be distributed to MCL.

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As of March 31, 2015, Syndicate 5151 held $266.9 million in investment securities (including accrued interest) and $13.6 million in cash and cash equivalents (including restricted cash), within the Premiums Trust Funds. As of December 31, 2014, Syndicate 5151 held $249.8 million in investment securities (including accrued interest) and $34.7 million in cash and cash equivalents (including restricted cash), within the Premiums Trust Funds.

NOTE 12. Share-Based Compensation

Share-Based Compensation Based on the Company’s Common Shares

At the discretion of the Board’s Compensation and Nominating Committee (the “Compensation Committee”), incentive awards, the value of which are based on Common Shares, may be made to eligible employees, consultants and non-employee directors of the Company and its subsidiaries. For the periods presented, Montpelier’s share-based incentive awards consisted solely of RSUs.

RSUs are phantom (as opposed to actual) Common Shares which, depending on the individual award, vest in equal tranches over a one to five-year period, subject to the recipient maintaining a continuous relationship with Montpelier through the applicable vesting date. RSUs are payable in Common Shares upon vesting (the amount of which may be reduced by applicable statutory income tax withholdings at the recipient’s option). RSUs do not require the payment of an exercise price and are not entitled to voting rights, but they are entitled to receive payments equivalent to any dividends and distributions declared on the Common Shares underlying the RSUs.

The Company currently uses variable RSUs (“Variable RSUs”) as the principal component of its ongoing long-term incentive compensation for participating employees. Variable RSUs are awarded based on Company performance during the first year of the applicable performance period (the “Initial RSU Period”) and are earned ratably each year based on continued employment over a four year vesting period. Since the number of RSUs to be awarded is dependent upon Company performance during the Initial RSU Period, the number of RSUs estimated to be awarded for that cycle may fluctuate throughout the Initial RSU Period.

The number of Variable RSUs expected to be formally awarded to employees is subject to the Company’s increase in its fully converted book value per Common Share (“FCBVPCS”). FCBVPCS is computed by dividing the Company’s common shareholders’ equity available to the Company by the sum of its ending Common Shares and unvested RSUs outstanding. The Company’s calculation of the growth in FCBVPCS represents the increase in its FCBVPCS during the Initial RSU Period, after taking into account dividends on Common Shares declared during such period.

The Company also uses fixed RSUs (“Fixed RSUs”) as a supplemental component of its ongoing long-term incentive compensation for certain employees and its non-employee directors. Unlike Variable RSUs, the number of Fixed RSUs is fixed on the grant date. Fixed RSUs are typically granted for the following purposes: (i) to induce individuals to join Montpelier; (ii) to retain certain key employees; (iii) to reward employees for exhibiting outstanding individual performance; and (iv) as remuneration to non-management members of the Board. Additionally, when the actual number of Variable RSUs to be awarded in any given year has been formally determined, they are effectively converted into Fixed RSUs.

As of March 31, 2015, the Company’s Variable RSUs outstanding consisted of those for the 2015 - 2018 cycle. The number of Variable RSUs to be awarded for this cycle will be determined based on the Company’s actual 2015 increase in its FCBVPCS versus a target increase in FCBVPCS of 10.0% (“Target”). If Target is achieved, the Company would expect to grant 414,460 Variable RSUs to participants. At an increase in FCBVPCS of 3.0% or less (“Threshold”), the Company would not expect to grant any Variable RSUs to participants, and at an increase in FCBVPCS of 17% or more (“Maximum”), the Company would expect to grant 828,920 Variable RSUs to participants.

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The following table summarizes the Company’s RSU activity for the three month periods ended March 31, 2015 and 2014:

	Three Month Periods Ended March 31,
	2015					2014
	RSUs Outstanding		Unamortized Grant Date Fair Value			RSUs Outstanding		Unamortized Grant Date Fair Value
Beginning of period	1,520,764		$	17.0		1,448,374		$	12.2

Fixed RSUs Awarded	9,500		0.3			20,000		0.5

Variable RSUs, 2015-2018 cycle:
RSUs projected to be awarded	414,460		14.3			—		—

Variable RSUs, 2014-2017 cycle:
RSUs projected to be awarded	—		—			494,340		13.5
RSU payout adjustments	1,065		—			—		—

Variable RSUs, 2013-2016 cycle:
RSU payout adjustments	—		—			(17,263	)	(0.3		)

RSU payments	(222,580	)	—			(300,400	)	—

RSU forfeitures and changes in forfeiture assumptions	(5,938	)	0.5			(55,541	)	(1.0		)

RSU expense recognized	—		(4.8		)	—		(3.0		)
End of period	1,717,271		$	27.3		1,589,510		$	21.9

RSU Awards and Payments - three month period ended March 31, 2015

During the three month period ended March 31, 2015, the Company awarded a total of 9,500 Fixed RSUs to participating employees. Of the total Fixed RSUs awarded during that period, 3,500 RSUs were awarded for a one-year cycle and 6,000 RSUs were awarded for a four-year cycle.

On the basis of the Company’s forecasted increase in its FCBVPCS for 2015, the Company anticipated issuing 414,460 Variable RSUs for the 2015-2018 award cycle as of March 31, 2015, or 100% of the in force Target RSUs for that cycle at that time.

During the three month period ended March 31, 2015, the Company paid out 222,580 vested RSUs and withheld, at the recipient’s election, 42,451 RSUs in satisfaction of statutory income tax liabilities. As a result, the Company issued 180,129 Common Shares from its treasury. See Note 7. The fair value of the RSUs paid out during the three month period ended March 31, 2015, was $8.1 million.

Based on actual 2014 results achieved, and as formally approved by the Compensation Committee in February 2015, the actual number of Variable RSUs awarded for the 2014-2017 cycle were increased during the first quarter of 2015 by 1,065 RSUs in order to fix the number of Variable RSUs awarded to be 172% of the in force target RSUs for that cycle.

None of the outstanding RSUs at March 31, 2015 were vested.

RSU Awards and Payments - three month period ended March 31, 2014

During the three month period ended March 31, 2014, the Company awarded a total of 20,000 Fixed RSUs to participating employees. Of the total Fixed RSUs awarded during that period, 5,000 RSUs were awarded for a one-year cycle, 11,000 RSUs were awarded for a three-year cycle and 4,000 RSUs were awarded for a five-year cycle.

On the basis of the Company’s increase in its FCBVPCS during the first quarter of 2014, the Company anticipated issuing 494,340 Variable RSUs for the 2014-2017 award cycle as of March 31, 2014, or 100% of the in force Target RSUs for that cycle at that time.

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During the three month period ended March 31, 2014, the Company paid out 300,400 vested RSUs and withheld, at the recipient’s election, 64,022 RSUs in satisfaction of statutory income tax liabilities. As a result, the Company issued 236,378 Common Shares from its treasury. See Note 7. The fair value of the RSUs paid out during the first quarter of 2014 was $8.6 million.

Based on actual 2013 results achieved, and as formally approved by the Compensation Committee in February 2014, the actual number of Variable RSUs awarded for the 2013-2016 cycle was reduced during the first quarter of 2014 by 17,263 RSUs in order to fix the number of Variable RSUs awarded to be 166% of the in force target RSUs for that cycle.

None of the outstanding RSUs at March 31, 2014 were vested.

RSU Forfeitures, Forfeiture Assumptions and Other RSU Adjustments

For the periods presented, the Company assumed a zero to 6.4% forfeiture rate depending on the nature and term of individual awards and past experience. The Company’s forfeiture assumptions serve to reduce the unamortized grant date fair value of outstanding RSUs as well as the associated RSU expense. As RSUs are actually forfeited, the number of RSUs outstanding is reduced and the remaining unamortized grant date fair value is compared to assumed forfeiture levels. True-up adjustments are made as deemed necessary.

The Company revises its expected RSU forfeiture assumptions in light of actual forfeitures experienced. As a result, the Company increased (reduced) the unamortized grant date fair value of its RSUs outstanding during the three month periods ended March 31, 2015 and 2014 by $0.5 million and $(1.0) million, respectively.

RSUs Outstanding at March 31, 2015

The following table summarizes all RSUs outstanding and the unamortized grant date fair value of such RSUs at March 31, 2015 for each award cycle:

Award Date and Cycle	RSUs Outstanding	Unamortized Grant Date Fair Value

Five-year RSU awards granted in 2011	7,000	$	—
Three-year RSU awards granted in 2012	2,000	—
Four-year RSU awards granted in 2012	224,103	1.4
Five-year RSU awards granted in 2012	4,700	—
Three-year RSU awards granted in 2013	8,000	0.1
Four-year RSU awards granted in 2013	375,856	3.1
One-year RSU awards granted in 2014	22,500	0.1
Two-year RSU awards granted in 2014	4,000	—
Three-year RSU awards granted in 2014	7,334	0.1
Four-year RSU awards granted in 2014	634,618	9.7
Five-year RSU awards granted in 2014	3,200	0.1
One-year RSU awards granted in 2015	3,500	0.1
Four-year RSU awards granted in 2015 (including those awards in their Initial Award Period)	420,460	12.6
Total RSUs outstanding at March 31, 2015	1,717,271	$	27.3

The Company expects to incur future RSU expense associated with its currently outstanding RSUs of $14.1 million, $8.7 million, $3.6 million and $0.9 million during 2015, 2016, 2017 and 2018, respectively.

Share-Based Compensation Based on BCRH common shares (“BCRH Common Shares”)

At the discretion of BCRH’s Compensation and Nominating Committee, incentive awards, the value of which are based on BCRH Common Shares, may be made to BCRH’s directors, future employees and consultants.

BCRH’s 2013 Long-Term Incentive Plan (the “2013 BCRH LTIP”), which was adopted by BCRH’s board of directors in September 2013, permits the issuance of up to one percent of the aggregate BCRH Common Shares outstanding to participants.

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Incentive awards that may be granted under the 2013 BCRH LTIP include RSUs (“BCRH RSUs”), restricted BCRH Common Shares, incentive share options (on a limited basis), non-qualified share options, share appreciation rights, deferred share units, performance compensation awards, performance units, cash incentive awards and other equity-based and equity-related awards. For the periods presented, BCRH’s outstanding share-based incentive awards consisted solely of RSUs.

In June 2014, BCRH awarded a total of 7,000 BCRH RSUs to its directors. The BCRH RSUs awarded earn ratably each year based on continued service as a director over a three-year vesting period. The grant date fair value of the BCRH RSUs awarded was $0.1 million. In determining the grant date fair value associated with the BCRH RSUs awarded, BCRH assumed a forfeiture rate of zero. This forfeiture assumption may be adjusted, if necessary, based on future experience.

During the three month period ended March 31, 2015, BCRH recognized less than $0.1 million of BCRH RSU expense. BCRH expects to incur future RSU expense associated with its currently outstanding BCRH RSUs of less than $0.1 million.

As of March 31, 2015, there were 7,000 incentive awards outstanding under the 2014 BCRH LTIP.

NOTE 13. Income Taxes

The Company is domiciled in Bermuda and has subsidiaries domiciled in several countries, primarily Bermuda, the U.K. and the U.S. The Company, BCRH, Montpelier Re, Blue Water Re, Blue Capital Re and Blue Capital Re ILS intend to conduct substantially all of their operations in Bermuda in a manner such that it is improbable that they would be subject to direct taxation in the U.K. or the U.S. However, because there is no definitive authority regarding activities that constitute taxable activities in the U.K. or the U.S., there can be no assurance that those jurisdictions will not contend, perhaps successfully, that the Company, BCRH, Montpelier Re, Blue Water Re, Blue Capital Re and/or Blue Capital Re ILS is engaged in a trade or business in the U.S. and is therefore subject to taxation. In that event, those entities would be subject to U.K. income taxes, or U.S. income and branch profits taxes, on income that is connected with or attributable to such activities unless the corporation is entitled to relief under an applicable tax treaty.

Montpelier has subsidiaries domiciled in the U.K. and the U.S. which are subject to the respective foreign and/or federal income taxes in those jurisdictions. The Company’s U.S.- domiciled subsidiaries are also subject to state and local income taxes. The provision for U.S. federal income taxes has been determined under the principles of the consolidated tax provisions of the U.S. Internal Revenue Code and Regulations.

The Company has no current intention, or liquidity need, to repatriate any earnings from its U.K. and U.S. operations to Bermuda. Additionally, the Company’s current structure is such that any distributions of earnings from its subsidiaries outside of Bermuda would not subject Montpelier to a significant amount of incremental taxation.

During the three month periods ended March 31, 2015 and 2014, Montpelier recorded an income tax benefit (provision) of $(1.0) million and $0.1 million, respectively. During each of these periods, Montpelier’s income tax movements were associated primarily with its U.K. operations.

During the three month periods ended March 31, 2015 and 2014, Montpelier paid $1.3 million and less than $0.1 million in income taxes, respectively.

Bermuda

The Company and its Bermuda-domiciled subsidiaries have received an assurance from the Bermuda government exempting them from all local income, withholding and capital gains taxes until March 31, 2035. At the present time, no such taxes are levied in Bermuda. During the three month periods ended March 31, 2015 and 2014, these companies had pretax income of $61.1 million and $105.2 million, respectively.

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United Kingdom

MCL, MAL, MUSL and their parent, Montpelier Holdings Limited, are subject to U.K. income taxes. During the three month periods ended March 31, 2015 and 2014, these companies had pretax income (losses) of $2.9 million and $(2.9) million, respectively. Of these U.K. entities, only MCL remains in a cumulative net operating loss position at March 31, 2015. The cumulative net operating loss associated with MCL’s operations may be carried forward to offset future taxable income generated by that entity and do not expire with time.

The pretax income associated with any of these U.K. entities is generally taxable to Montpelier unless: (i) that entity has prior year net operating losses that may be utilized to fully or partially offset its current income tax liability; or (ii) another entity within Montpelier’s U.K. group of companies experiences a current year pretax loss which is eligible to be used to fully or partially offset any other entity’s current income tax liability.

During the three month periods ending March 31, 2015 and 2014, the entities within Montpelier’s U.K. group recorded net income tax benefit (provisions) totaling $(0.8) million and $0.1 million, respectively.

MCL did not recognize an income tax benefit during the three month period ended March 31, 2014 due to the uncertainty, at that time, as to whether it would generate sufficient taxable income in future periods in order to utilize its cumulative net operating loss.

United States

MUI, MTR, Cladium and their parent, Montpelier Re U.S. Holdings Ltd., are subject to U.S. Federal income tax but are currently in a cumulative net operating loss position. During the three month periods ended March 31, 2015 and 2014, these companies had pretax income (losses) of $0.7 million and $(0.2) million, respectively. Although cumulative net operating losses ordinarily give rise to deferred tax assets, due to the uncertainty at this time as to whether such operations will generate sufficient taxable income in future periods to utilize such assets, Montpelier has established an offsetting U.S. deferred tax asset valuation allowance against its existing gross deferred tax asset of $15.3 million and $15.6 million at March 31, 2015 and December 31, 2014, respectively.

The net operating losses associated with the Company’s U.S.-based operations may be carried forward to offset future taxable income in that jurisdiction and will begin to expire in 2027.

The Company’s U.S.-based operations are also subject to U.S. Federal alternative minimum tax, and state and local income taxes which totaled $0.2 million and less than $0.1 million during the three month periods ended March 31, 2015 and 2014, respectively.

NOTE 14. Related Party Transactions

BCRH

BCRH provides fully-collateralized property catastrophe reinsurance and invests in various insurance-linked securities through its subsidiaries Blue Capital Re and Blue Capital Re ILS. BCRH commenced its operations in November 2013 and, pursuant to an initial public offering (the “IPO”), its common shares are listed on the New York Stock Exchange and the Bermuda Stock Exchange. As of March 31, 2015 and December 31, 2014, Montpelier owned 33.3% of BCRH’s outstanding common shares, respectively.

The underwriting decisions and operations of BCRH and its subsidiaries are managed by BCML, and each uses Montpelier’s reinsurance underwriting expertise and infrastructure to conduct its business. In addition, Blue Water Re, the Company’s wholly-owned special purpose insurance vehicle, is a significant source of reinsurance business for BCRH.

Mr. William Pollett, the Company’s Chief Corporate Development and Strategy Officer and Treasurer, serves as a director and the Chief Executive Officer of BCRH and Mr. Michael Paquette, the Company’s Chief Financial Officer, serves as BCRH’s interim Chief Financial Officer. Further, Mr. Christopher Harris, the Company’s Chief Executive Officer, serves as Chairman of BCRH.

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All of the compensation to which Messrs. Pollett and Harris are entitled as directors of BCRH has been assigned and paid directly to Montpelier.

Montpelier provides services to BCRH and its subsidiaries through the following arrangements:

BW Retrocessional Agreement. Through a retrocessional contract dated December 31, 2013 (the “BW Retrocessional Contract”), between Blue Capital Re and Blue Water Re, Blue Water Re has the option to cede to Blue Capital Re up to 100% of its participation in the ceded reinsurance business it writes, provided that such business is in accordance with Blue Capital Re’s underwriting guidelines. Pursuant to the BW Retrocessional Contract, Blue Capital Re may participate in: (i) retrocessional, quota share or other agreements between Blue Water Re and Montpelier Re or other third-party reinsurers, which provides it with the opportunity to participate in a diversified portfolio of risks on a proportional basis; and (ii) fronting agreements between Blue Water Re and Montpelier Re or other well capitalized third-party rated reinsurers, which allows Blue Capital Re to transact business with counterparties who prefer to enter into contracts with rated reinsurers.

Investment Management Agreement. On November 12, 2013, BCRH entered into an Investment Management Agreement with BCML (the “Investment Management Agreement”). Pursuant to the terms of the Investment Management Agreement, BCML has full discretionary authority, including the delegation of the provision of its services, to manage BCRH’s assets, subject to its underwriting guidelines, the terms of the Investment Management Agreement and the oversight of BCRH’s board of directors.

Underwriting and Insurance Management Agreement. BCRH, Blue Capital Re and BCML have entered into an Underwriting and Insurance Management Agreement (the “Underwriting and Insurance Management Agreement”). Pursuant to the Underwriting and Insurance Management Agreement, BCML provides underwriting, risk management, claims management, ceded retrocession agreements management, and actuarial and reinsurance accounting services to Blue Capital Re. BCML has full discretionary authority to manage the underwriting decisions of Blue Capital Re, subject to BCRH’s underwriting guidelines, the terms of the Underwriting and Insurance Management Agreement and the oversight of BCRH’s and Blue Capital Re’s boards of directors.

Administrative Services Agreement. BCRH has entered into an Administrative Services Agreement with BCML, as amended on November 13, 2014 (the “Administrative Services Agreement”). Pursuant to the terms of the Administrative Services Agreement, BCML provides BCRH with support services, including the services of Messrs. Pollett and Paquette, as well as finance and accounting, internal audit, claims management and policy wording, modeling software licenses, office space, information technology, human resources and administrative support.

BCRH and its subsidiaries may not terminate the Investment Management Agreement, the Underwriting and Insurance Management Agreement or the Administrative Services Agreement until the fifth anniversary of the completion of the BCRH IPO, whether or not BCML’s performance is satisfactory. Upon any termination or non-renewal of either of the Investment Management Agreement or the Underwriting and Insurance Management Agreement (other than for a material breach by, or the insolvency of, BCML), BCRH and/or its subsidiaries must pay a one-time termination fee to BCML equal to 5% of its GAAP shareholders’ equity, calculated as of the most recently completed quarter prior to the date of termination (approximately $8.9 million as of March 31, 2015).

BCRH Credit Agreement. The Company serves as a guarantor for the BCRH Credit Agreement and is entitled to an annual fee equal to 0.125% of the facility’s total capacity. See Note 5.

On a stand-alone basis, any fees incurred pursuant to the Investment Management Agreement, the Underwriting and Insurance Management Agreement or the Administrative Services Agreement, including any fees triggered upon termination or non-renewal of any of them, represent expenses to BCRH and /or its subsidiaries and revenues to BCML. On a consolidated basis, the portion of such fees incurred by BCRH’s non-controlling interests pursuant to these agreements represent a decrease to the net income attributable to non-controlling interests on the Company’s Consolidated Statement of Operations and Comprehensive Income, thereby increasing the net income and comprehensive income available to the Company.

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During each of the three month periods ended March 31, 2015 and 2014, Montpelier earned $0.7 million pursuant to services it provided to BCRH and its subsidiaries under the Investment Management Agreement and $0.1 million under the Administrative Services Agreement. During the three month periods ended March 31, 2015 and 2014, Montpelier also earned $0.1 million and less than $0.1 million, respectively, pursuant to: (i) the Underwriting and Insurance Management Agreement; and (ii) its role as a guarantor for the BCRH Credit Agreement.

As of March 31, 2015 and December 31, 2014, BCRH and its subsidiaries owed Montpelier $1.4 million and $0.5 million, respectively, for the services performed pursuant to the aforementioned agreements.

NOTE 15. Fair Value of Financial Instruments

GAAP requires disclosure of fair value information for certain financial instruments. For those financial instruments in which quoted market prices are not available, fair values are estimated by discounting future cash flows using current market rates or quoted market prices for similar obligations. Because considerable judgment is used, these estimates are not necessarily indicative of amounts that could be realized in a current market exchange. Montpelier carries its assets and liabilities that constitute financial instruments on its Consolidated Balance Sheets at fair value with the exception of its debt and its other investments carried at net asset value.

At March 31, 2015 and December 31, 2014, the fair value of the Senior Notes (based on quoted market prices, which represent Level 2 inputs) was $318.7 million and $306.3 million, respectively, which compared to a carrying value of $299.3 million. See Note 5.

At March 31, 2015 and December 31, 2014, the fair value of the Trust Preferred Securities (based on quoted market prices for similar securities, which represent Level 2 inputs) was $85.8 million and $92.0 million, respectively, which compared to a carrying value of $100.0 million. See Note 5.

At March 31, 2015 and December 31, 2014, the fair value of BCRH’s outstanding borrowings under the BCRH Credit Agreement, each of which were of a short duration, approximated their carrying values of $4.0 million and $8.0 million, respectively. See Note 5.

At March 31, 2015 and December 31, 2014, the fair value and net asset value of Montpelier’s other investments carried on the Company’s Consolidated Balance Sheets were approximately the same. See Note 4.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

General

The following is a discussion and analysis of our results of operations for the three month periods ended March 31, 2015 and 2014, and our financial condition as of March 31, 2015 and December 31, 2014. This discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and related notes thereto included in Part I, Item 1 of this report and with our audited consolidated financial statements and related notes thereto contained in the 2014 Form 10-K, as filed with the SEC.

This Report on Form 10-Q contains forward-looking statements within the meaning of the U.S. federal securities laws, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, that are not historical facts, including statements about our beliefs and expectations. These statements are based upon current plans, estimates and projections. Forward-looking statements rely on a number of assumptions concerning future events and are subject to a number of uncertainties and various risk factors, many of which are outside our control. See Item 1A “Risk Factors” contained in the 2014 Form 10-K, as filed with the SEC, for specific important factors that could cause actual results to differ materially from those contained in forward looking statements. In particular, statements using words such as “may,” “should,” “estimate,” “expect,” “anticipate,” “intend,” “believe,” “predict,” “potential,” or words of similar meaning generally involve forward-looking statements.

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Important events and uncertainties that could cause our results or future dividends on, or repurchases of, Common Shares or Preferred Shares to change include, but are not limited to: market conditions affecting the prices of our Common Shares or Preferred Shares; the possibility of severe or unanticipated losses from natural or man-made catastrophes, including those that may result from changes in climate conditions, including, but not limited to, global temperatures and expected sea levels; the effectiveness of our loss limitation methods; our dependence on principal employees; our ability to effectively execute the business plans of the Company, its subsidiaries and any new ventures that it may enter into; the cyclical nature of the insurance and reinsurance business; the levels of new and renewal business achieved; opportunities to increase writings in our core property and specialty insurance and reinsurance lines of business and in specific areas of the casualty reinsurance market and our ability to capitalize on those opportunities; the sensitivity of our business to financial strength ratings established by independent rating agencies; the inherent uncertainty of our risk management processes, which are subject to, among other things, industry loss estimates and estimates generated by modeling techniques; the accuracy of written premium estimates reported by cedants and brokers on pro-rata contracts and certain excess-of-loss contracts where a deposit or minimum premium is not specified in the contract; the inherent uncertainties of establishing reserves for loss and loss adjustment expenses, including our dependency on the loss information we receive from cedants and brokers; unanticipated adjustments to premium estimates; changes in the availability, cost or quality of reinsurance or retrocessional coverage; changes in general economic and financial market conditions; changes in and the impact of governmental legislation or regulation, including changes in tax laws in the jurisdictions where we conduct business; the amount and timing of reinsurance recoverables and reimbursements we actually receive from our reinsurers; the overall level of competition, and the related demand and supply dynamics in our markets relating to growing capital levels in our industry; declining demand due to increased retentions by cedants and other factors; the impact of terrorist activities on the Company and the economy; rating agency policies and practices; unexpected developments concerning the small number of insurance and reinsurance brokers upon whom we rely for a large portion of revenues; our dependence as a holding company upon dividends or distributions from our operating subsidiaries; the impact of foreign currency and interest rate fluctuations; the risk that the Merger is delayed or will not be completed and the resulting effect thereof on our future business, financial results, ratings and the price of our Common Shares; the effect the expenses related to the Merger may have on our operating results; the effect of business uncertainties and contractual restrictions while the Merger is pending; the potential loss of management or other key employees as a result of the Merger; and the impact to holders of our Common Shares of reduced ownership and voting interests after the Merger is completed.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the dates on which they are made.

A widely-used measure of relative underwriting performance for an insurance or reinsurance company is the combined ratio. Our combined ratio is calculated by adding: (i) the ratio of incurred losses and LAE to earned premiums (known as the “loss and LAE ratio”); (ii) the ratio of acquisition costs to earned premiums (known as the “acquisition cost ratio”); and (iii) the ratio of general and administrative expenses to earned premiums (known as the “general and administrative expense ratio”), with each component determined in accordance with GAAP (the “GAAP combined ratio”). A GAAP combined ratio under 100% indicates that an insurance or reinsurance company is generating an underwriting profit. A GAAP combined ratio over 100% indicates that an insurance or reinsurance company is generating an underwriting loss.

Overview

Summary Financial Results

Three Month Periods Ended March 31, 2015 and 2014

We ended the first quarter of 2015 with a FCBVPCS of $33.90, an increase of 2.7% for the quarter after taking into account dividends declared on Common Shares during the period. The increase in our FCBVPCS was primarily the result of solid underwriting and investing results (as measured on a total return basis). Our comprehensive income available to the Company for the first quarter of 2015 was $53.9 million and our GAAP combined ratio was 69%.

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Our underwriting results for the first quarter of 2015 contained no individually significant catastrophe losses and benefitted from $25.6 million of net prior year favorable loss reserve development. Our investment results for the first quarter of 2015 included $13.8 million of net realized and unrealized investment gains, which were comprised of $9.3 million in net gains from fixed maturity investments, $3.3 million in net gains from equity securities and $1.2 million in net gains from other investments.

We ended the first quarter of 2014 with a FCBVPCS of $31.01, an increase of 5.8% for the quarter after taking into account dividends declared on Common Shares during the period. The increase in our FCBVPCS was primarily the result of strong underwriting and investment results (as measured on a total return basis). Our comprehensive income available to the Company for the first quarter of 2014 was $93.4 million and our GAAP combined ratio was 50.4%.

Our underwriting results for the first quarter of 2014 contained no individually significant catastrophe losses and benefitted from $35.2 million of net prior year favorable loss reserve development. Our investment results for the first quarter of 2014 included $22.7 million of net realized and unrealized investment gains, which were comprised of $15.3 million in net gains from fixed maturity investments, $3.6 million in net gains from equity securities and $3.8 million in net gains from other investments.

Book Value Per Common Share

The following table presents our computations of book value per Common Share (“BVPCS”) and FCBVPCS as of selected balance sheet dates:

	March 31, 2015			Dec. 31, 2014			March 31, 2014
Book value numerator (in millions):

Total Shareholders’ Equity available to the Company	$	1,693.1		$	1,648.2		$	1,657.2
Less: Preferred Shareholders’ Equity	(150.0		)	(150.0		)	(150.0		)
[A] Common Shareholders’ Equity available to the Company	$	1,543.1		$	1,498.2		$	1,507.2

Book value denominators (in thousands):

[B] Common Shares outstanding	43,799			43,619			47,018
RSUs outstanding	1,717			1,521			1,589
[C] Common Shares and RSUs outstanding	45,516			45,140			48,607

BVPCS [A] / [B]	$	35.23		$	34.35		$	32.05
FCBVPCS [A] / [C]	33.90			33.19			31.01

Increase in FCBVPCS: (1)

From December 31, 2014	2.7		%
From March 31, 2014	11.7		%

(1) Computed as the change in FCBVPCS after taking into account dividends declared on Common Shares of $0.20 and $0.725 during the three and twelve month periods ended March 31, 2015, respectively.

Our computations of FCBVPCS and the increase in FCBVPCS are non-GAAP measures which we believe are important to our investors, analysts and other interested parties who benefit from having an objective and consistent basis for comparison with other companies within our industry.

The Company’s increase in FCBVPCS serves as the performance measure for both the portion of our annual employee cash bonuses that are based on Company performance and for our Variable RSU awards in the Initial RSU Period (each as defined on page F-41 of this report). We believe that this performance measure: (i) directly aligns our interests and motivations with those of our stakeholders; and (ii) provides our employees with the ability to easily understand, and identify with, their incentive hurdle, and allows our stakeholders to easily track the Company’s performance with respect to this goal, since we present our calculations of FCBVPCS and the increase in our FCBVPCS in our quarterly earnings releases and our annual and quarterly filings with the SEC.

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Executive Overview

We provide customized and innovative insurance and reinsurance solutions to the global market through our underwriting platforms in Bermuda, the U.K. and the U.S. Through our affiliates in Bermuda, we also provide institutional and retail investors with the opportunity to directly invest in global property catastrophe reinsurance risks.

We experienced continued competition during the January 1, 2015 renewal season, particularly within our Property Catastrophe-Treaty class, due to relatively light industry catastrophe losses experienced since 2012. As a result, we experienced an overall rate decrease of approximately 6% on the risks we wrote at January 1, 2015.

Despite the competitive market conditions we currently face, through our efforts thus far in 2015, we believe that we have: (i) achieved preferred signings; (ii) maintained strong relationships with our key business partners; and (iii) expanded our product mix. Further, through the recent reductions to our largest projected exposures from single event losses versus those of a year ago, we have retained the ability to quickly adapt and respond to new market opportunities while continuing our strategic focus on property, marine and other short-tail lines. Given our strong balance sheet, disciplined underwriting and specialist approach, we believe we are positioned to continue to perform well.

On March 31, 2015, we entered into the Merger Agreement with Endurance and Millhill. Subject to the terms and conditions of the Merger Agreement, the Company will be merged with and into Millhill, with Millhill surviving the Merger as a wholly-owned subsidiary of Endurance.

Pursuant to the terms of the Merger Agreement, upon the closing of the Merger, our shareholders will be entitled to receive consideration of 0.472 common shares of Endurance and $9.89 in cash per Common Share. The cash portion of the consideration will be funded by us through a pre-closing dividend. Following completion of the transaction, our existing common shareholders will own approximately 32% of Endurance’s outstanding common shares.

We also intend to redeem our Preferred Shares in connection with the Merger for $26.00 per share plus declared and unpaid dividends, if any, to the date of the redemption, in accordance with the Certificate of Designation of the Preferred Shares. See Note 7 of the Notes to Consolidated Financial Statements.

Third-Party Fees and Expense Reimbursements

We have entered into specialized quota share reinsurance contracts with third-parties and certain of our affiliates, namely BCRH and the BCGR Listed Fund, with respect to a portion of Montpelier Re’s Property Catastrophe - Treaty book of business, under which we are eligible to receive override and profit commissions.

We record the override and profit commissions associated with specialized quota share reinsurance contracts with third-parties (when earned) as a reduction to our acquisition costs which, in turn, reduces our acquisition cost and overall combined ratios. These benefits totaled $2.2 million and $2.7 million during the three month periods ended March 31, 2015 and 2014, respectively.

We record the override and profit commissions associated with specialized quota share reinsurance contracts with BCRH and the BCGR Listed Fund (when earned), as well as the fronting fees, management and performance fees and expense reimbursements we receive as the manager for these entities, as decreases to the net income attributable to non-controlling interests, thereby increasing the net income and comprehensive income available to the Company. These benefits totaled $2.7 million and $2.2 million during the three month periods ended March 31, 2015 and 2014, respectively.

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Natural Catastrophe Risk Management

We insure and reinsure exposures throughout the world against various natural catastrophe perils. We manage our exposure to these perils using a combination of methods, including underwriting judgment, CATM® (our proprietary risk management system), third-party models and third-party protection such as ceded reinsurance and derivative instrument protections.

Our multi-tiered risk management approach focuses on tracking exposed contract limits, estimating the potential impact of a single natural catastrophe event and simulating our yearly net operating result to reflect an aggregation of modeled underwriting, investment and other risks. Management routinely seeks to refine and improve our risk management system and the Board regularly reviews the outputs from this process.

The following discussion should be read in conjunction with Item 1A “Risk Factors” included in the 2014 Form 10-K, as filed with the SEC, in particular the specific risk factor entitled “Our stated catastrophe and enterprise-wide risk management exposures are based on estimates and judgments which are subject to significant uncertainties.”

Exposure Management

We monitor our net reinsurance treaty contract limits that we believe are exposed to a single natural catastrophe occurrence within certain broadly defined major catastrophe zones. We provide these limits as a measure of our relative potential loss exposure across major zones in the event a natural catastrophe occurs.

Our January 1, 2015 net reinsurance treaty limits by zone were as follows:

Net Reinsurance Treaty Limits by Zone (1)

	Treaty Limits		Percentage of March 31, 2015
	(Millions)		Shareholders’ Equity Available to the Company
U.S. Hurricane:

Mid-Atlantic hurricane	$	498	29	%
Northeast hurricane	413		24	%
Florida hurricane	385		23	%
Gulf hurricane	363		21	%
Hawaii hurricane	163		10	%

U.S. Earthquake:

New Madrid earthquake	$	510	30	%
California earthquake	361		21	%
Northwest earthquake	324		19	%

European Windstorm:

Western European windstorm	$	409	24	%
U.K. & Ireland windstorm	364		21	%
Scandinavia windstorm	170		10	%

Other Countries:

Japan earthquake	$	242	14	%
Canada earthquake	218		13	%
Australia earthquake	218		13	%
Australia cyclone	207		12	%
New Zealand earthquake	158		9	%
Turkey earthquake	149		9	%
Chile earthquake	139		8	%
Japan windstorm	118		7	%

(1) For purposes of this presentation, “Mid-Atlantic” includes Georgia, South Carolina, North Carolina, Virginia, West Virginia, Maryland, Delaware, Pennsylvania, New Jersey and the District of Columbia; “Northeast” includes New York, Connecticut, Rhode Island, Massachusetts, New Hampshire, Vermont and Maine; “Gulf” includes Texas, Louisiana, Mississippi and Alabama; “New Madrid” includes Missouri, Tennessee, Arkansas, Illinois, Kentucky, Indiana, Ohio and Michigan; “Northwest” includes Washington and Oregon; “Western European” includes France, Belgium, Netherlands, Luxembourg, Germany, Switzerland and Austria; and “Scandinavia” includes Denmark, Norway and Sweden.

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The treaty limits presented are shown net of any ceded reinsurance or other third-party protection we purchase but have not been reduced by any reinstatement premiums. The treaty limits include all business coded as property catastrophe reinsurance (including retrocessional business), property pro-rata reinsurance, workers compensation catastrophe reinsurance and event-linked derivative securities. The treaty limits also include those exposures we have assumed through our investments in BCRH and the BCGR Listed Fund, but exclude those exposures attributable to non-controlling interests. The treaty limits do not include individual risk business and other reinsurance classes.

For U.S. earthquake, the regional limits shown are for earthquake ground motion damage only, i.e., they exclude limits for contracts that do not specifically cover earthquake damage but may provide coverage for fire following an earthquake event. Contracts that provide coverage for multiple regions are included in the totals for each potentially exposed zone; therefore, the limits for a single multi-zone policy may be included within several different zone limits.

These treaty limits are a snapshot of our exposure as of January 1, 2015. As of that date, New Madrid earthquake represented our largest concentration of net reinsurance treaty limits among the selected zones. The relative comparison between zones and the absolute level of exposure may change materially at any time due to changes in the composition of our portfolio and changes in our ceded reinsurance program.

Single Event Losses

For certain defined natural catastrophe region and peril combinations, we assess the probability and likely magnitude of losses using a combination of industry third-party models, CATM® and underwriting judgment. We attempt to model the projected net impact from a single event, taking into account contributions from property catastrophe reinsurance (including retrocessional business), property pro-rata reinsurance, workers compensation catastrophe reinsurance, event-linked derivative securities and individual risk business, offset by the net benefit of any reinsurance or derivative protections we purchase and the benefit of reinstatement premiums.

The projected single event net impact figures also include those single event exposures we have assumed through our investments in BCRH and the BCGR Listed Fund, but exclude those exposures attributable to non-controlling interests.

There is no single standard methodology or set of assumptions utilized industry-wide in estimating property catastrophe losses. As a result, it may be difficult to accurately compare estimates of risk exposure among different insurance and reinsurance companies, due to, among other things, underwriting judgment, differences in modeling, modeling assumptions, portfolio composition and concentrations, and selected event scenarios.

The table below details the projected net impact from single event losses as of January 1, 2015 for selected zones at selected return period levels using AIR Worldwide Corporation’s Touchstone 2.0 and CATRADER 16.0, both of which are industry-recognized third-party vendor models. It is important to note that each catastrophe model contains its own assumptions as to the frequency and severity of loss events, and results may vary significantly from model to model.

Since we utilize a combination of third-party models, CATM® and underwriting judgment to project the net impact from single event losses, our internal projections may be higher or lower than those presented in the table below.

Net Impact From Single Event Losses by Return Period (in years) (1)

	Net Impact				Percentage of March 31, 2015
	(Millions)				Shareholders’ Equity Available to the Company
	100-year		250-year		100-year		250-year

U.S. Hurricane	$	263	$	313	16	%	18	%

European windstorm	219		273		13	%	16	%

U.S. Earthquake	158		259		9	%	15	%

(1) A “100-year” return period can also be referred to as the 1.0% occurrence exceedance probability (“OEP”), meaning there is a 1.0% chance in any given year that this level will be exceeded. A “250-year” return period can also be referred to as the 0.4% OEP, meaning there is a 0.4% chance in any given year that this level will be exceeded.

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As of January 1, 2015, our three largest modeled exposures to a single event loss at a 250-year return period were U.S. Hurricane, European Windstorm and U.S. Earthquake.

Our projections of the net impact from single event losses may vary considerably within a particular territory depending on the specific characteristics of the event. This is particularly true for the direct insurance and facultative reinsurance portfolio we underwrite. For example, our projected net impact from a large European windstorm may differ materially depending on whether the majority of loss comes from the U.K. & Ireland or from Continental Europe.

Given the limited availability of reliable historical data, there is a great deal of uncertainty with regard to the accuracy of any catastrophe model, especially when contemplating longer return periods.

Our single event loss estimates represent snapshots as of January 1, 2015. The composition of our in-force portfolio may change materially at any time due to the acceptance of new policies, the expiration of existing policies, losses incurred and changes in our ceded reinsurance and derivative protections. There were no material changes made to the composition of our in-force portfolio from January 1, 2015 to March 31, 2015.

Annual Operating Result

In addition to monitoring treaty contract limits and single event accumulation potential, we attempt to simulate our annual operating result to reflect an aggregation of modeled underwriting, investment and other risks. This approach estimates a net operating result over simulated twelve month periods, including contributions from certain variables such as aggregate premiums, losses, expenses and investment results.

We view this approach as a supplement to our single event stress test as it allows for multiple losses from both natural catastrophe and other circumstances and attempts to take into account certain risks that are unrelated to our underwriting activities. Through our modeling, we endeavor to take into account many risks that we face as an enterprise. However, by the very nature of the insurance and reinsurance business, and due to limitations associated with the use of models in general, our simulated result does not cover every potential risk.

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Consolidated Results of Operations

Our consolidated financial results for the three month periods ended March 31, 2015 and 2014 were as follows:

	Three Month Periods Ended March 31,
($ in millions)	2015			2014

Gross insurance and reinsurance premiums written	$	253.4		$	273.5
Ceded reinsurance premiums	(48.2		)	(36.4		)
Net insurance and reinsurance premiums written	205.2			237.1
Change in net unearned insurance and reinsurance premiums	(54.5		)	(80.3		)
Net insurance and reinsurance premiums earned	150.7			156.8

Net investment income	9.8			12.9
Net realized and unrealized investment gains	13.8			22.7
Net foreign currency gains (losses)	6.2			(1.8		)
Net loss from derivative instruments	(3.5		)	(5.1		)
Other revenues	1.4			0.3
Total revenues	178.4			185.8

Underwriting expenses:
Loss and LAE — current year losses	73.3			62.6
Loss and LAE — prior year losses	(25.6		)	(35.2		)
Insurance and reinsurance acquisition costs	27.6			24.8
General and administrative expenses	28.9			26.8

Non-underwriting expenses:
Interest and other financing expenses	4.7			4.7
Other expenses	4.8			—
Total expenses	113.7			83.7

Income before income taxes	64.7			102.1
Income tax benefit (provision)	(1.0		)	0.1

Net income	63.7			102.2
Net income attributable to non-controlling interests	(8.3		)	(9.0		)
Net income available to the Company	55.4			93.2
Dividends declared on Preferred Shares	(3.3		)	(3.3		)
Net income available to the Company’s common shareholders	$	52.1		$	89.9

Net income	$	63.7		$	102.2
Change in accumulated net foreign currency translation losses	(1.5		)	0.2
Comprehensive income	62.2			102.4
Net income attributable to non-controlling interests	(8.3		)	(9.0		)
Comprehensive income available to the Company	$	53.9		$	93.4

Loss and LAE ratio	31.7		%	17.5		%
Acquisition cost ratio	18.3		%	15.8		%
General and administrative expense ratio	19.2		%	17.1		%
GAAP combined ratio	69.2		%	50.4		%

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I. Review of Underwriting Results - by Segment

We operate through three reportable segments: Montpelier Bermuda, Montpelier at Lloyd’s and Collateralized Reinsurance. Each of our segments represents a separate and distinct underwriting platform through which we conduct insurance and reinsurance business. Our segment disclosures provided herein present the operations of each segment prior to the effects of any inter-segment quota share reinsurance agreements among them.

The activities of the Company, certain of its intermediate holding and service companies, the Company’s former Music Run-Off segment and eliminations relating to intercompany reinsurance and support services, collectively referred to as “Corporate and Other”, are also presented herein.

MONTPELIER BERMUDA

Underwriting results for Montpelier Bermuda for the three month periods ended March 31, 2015 and 2014 were as follows:

	Three Month Periods Ended March 31,
($ in millions)	2015			2014

Gross premiums written	$	152.6		$	173.9
Ceded reinsurance premiums	(43.6		)	(36.2		)
Net premiums written	109.0			137.7
Change in net unearned premiums	(40.9		)	(57.4		)
Net premiums earned	68.1			80.3

Loss and LAE - current year losses	(31.7		)	(25.9		)
Loss and LAE - prior year losses	30.8			26.0
Acquisition costs	(7.0		)	(8.1		)
General and administrative expenses	(9.7		)	(8.7		)
Underwriting income	$	50.5		$	63.6
Loss and LAE ratio	1.3		%	(0.1		)%
Acquisition cost ratio	10.3		%	10.1		%
General and administrative expense ratio	14.3		%	10.9		%

GAAP combined ratio	25.9		%	20.9		%

Gross and Net Premiums Written

The following table summarizes Montpelier Bermuda’s premium writings, by line of business, for the three month periods ended March 31, 2015 and 2014:

	Three Month Periods Ended March 31,
($ in millions)	2015					2014

Property Catastrophe - Treaty	$	107.4		70	%	$	120.9		70	%
Property Specialty - Treaty	15.0			10		17.6			10
Other Specialty - Treaty	24.7			16		28.4			16
Property and Specialty Individual Risk	5.5			4		7.0			4

Gross premiums written	152.6			100	%	173.9			100	%
Ceded reinsurance premiums	(43.6		)			(36.2		)
Net premiums written	$	109.0				$	137.7

Note - Montpelier Bermuda’s gross and net premiums written during the periods presented include amounts assumed from Montpelier at Lloyd’s. Montpelier Bermuda’s reinsurance premiums ceded include amounts ceded to Collateralized Reinsurance. These inter-segment reinsurance agreements are eliminated in consolidation. See “Corporate and Other” under this Item 2.

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Gross premiums written within Montpelier Bermuda decreased 12% during the three month period ended March 31, 2015, versus the comparable 2014 period. This reduction was largely the result of pricing reductions in the Property Catastrophe - Treaty line of business, which led to decreased premium on certain renewed contracts and the non-renewal of others.

Net premiums written and earned by Montpelier Bermuda included decreases due to reinstatements of $0.3 million and $0.1 million during the three month periods ended March 31, 2015 and 2014, respectively. The level of reinstatement premiums that Montpelier Bermuda may realize in future periods will be dependent upon the occurrence of future losses.

Reinsurance premiums ceded by Montpelier Bermuda during the three month periods ended March 31, 2015 and 2014, were $43.6 million and $36.2 million, respectively. The increase in Montpelier Bermuda’s reinsurance premiums ceded was primarily the result of more Property Catastrophe - Treaty business being ceded on a pro-rata basis to third parties.

Montpelier Bermuda purchases reinsurance in the normal course of its business in order to manage its exposures. The amount and type of reinsurance that Montpelier Bermuda purchases is dependent on a variety of factors, including the cost of a particular reinsurance cover and the nature of its gross premiums written during a particular period. Other factors affect Montpelier Bermuda’s appetite and capacity to write and retain risk. These factors include the impact of changes in frequency and severity assumptions used in our models and the corresponding pricing required to meet our return targets, evolving industry-wide capital requirements, increased competition, market conditions and other considerations.

All of Montpelier Bermuda’s reinsurance purchases to date have represented prospective cover; that is, reinsurance has been purchased to protect Montpelier Bermuda against the risk of future losses as opposed to covering losses that have already occurred but have not been paid. Montpelier Bermuda purchases: (i) excess-of-loss reinsurance covering one or more lines of its business; (ii) quota share reinsurance with respect to specific lines of its business; and (iii) industry loss warranty policies which provide coverage for certain losses provided they are triggered by events exceeding a specified industry loss size.

Net Premiums Earned

Net premiums earned by Montpelier Bermuda were $68.1 million and $80.3 million during the three month periods ended March 31, 2015 and 2014, respectively. Net premiums earned are primarily a function of the amount and timing of net premiums previously written.

Loss and LAE Reserve Movements

The following table summarizes Montpelier Bermuda’s loss and LAE reserve movements for the three month periods ended March 31, 2015 and 2014:

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	Three Month Periods Ended March 31,
(Millions)	2015			2014
Gross unpaid loss and LAE reserves - beginning	$	408.8		$	520.9
Reinsurance recoverable on unpaid losses - beginning	(45.3		)	(48.7		)
Net unpaid loss and LAE reserves - beginning	363.5			472.2

Losses and LAE incurred:
Current year losses	31.7			25.9
Prior year losses	(30.8		)	(26.0		)
Total losses and LAE incurred	0.9			(0.1		)

Losses and LAE paid and approved for payment	(18.3		)	(37.6		)

Net unpaid loss and LAE reserves - ending	346.1			434.5
Reinsurance recoverable on unpaid losses - ending	45.6			44.4

Gross unpaid loss and LAE reserves - ending	$	391.7		$	478.9

Note - Montpelier Bermuda’s ending reinsurance recoverable on unpaid losses at March 31, 2015 and December 31, 2014, include losses assumed from Montpelier at Lloyd’s in the amount of $6.6 million and $8.6 million, respectively, and amounts recoverable from our Collateralized Reinsurance segment of $8.5 million and $6.1 million, respectively, pursuant to inter-segment reinsurance arrangements which are eliminated in consolidation.

The following table presents Montpelier Bermuda’s net loss and LAE ratios for the three month periods ended March 31, 2015 and 2014:

	Three Month Periods Ended March 31,
	2015		2014
Loss and LAE ratio - current year	46.5	%	32.3	%
Loss and LAE ratio - prior year	(45.2	)%	(32.4	)%

Loss and LAE ratio	1.3	%	(0.1	)%

Losses and LAE Incurred - three month periods ended March 31, 2015 and 2014

Current Year Loss and LAE Events

During the three month periods ended March 31, 2015 and 2014, Montpelier Bermuda incurred $31.7 million and $25.9 million in current year net losses and LAE, respectively. There were no individually significant known loss events impacting Montpelier Bermuda during either of those periods.

Prior Year Loss and LAE Development

During the three month period ended March 31, 2015, Montpelier Bermuda experienced $30.8 million in net favorable development on prior year loss and LAE reserves relating primarily to the following events and factors:

· 2010 and 2011 New Zealand earthquakes ($6.7 million decrease),

· Casualty losses relating to multiple prior years, primarily 2008-2012 ($3.4 million decrease),

· 2011 Japanese earthquake ($2.1 million decrease), and

· 2005 Hurricane Wilma ($1.6 million decrease).

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During the first quarter of 2014, Montpelier Bermuda experienced $26.0 million in net favorable development on prior year loss and LAE reserves, which included loss reserve movements associated with:

· A casualty claim incurred during 2012 ($3.6 million increase),

· 2011 New Zealand earthquakes ($3.0 million decrease),

· 2005 U.S. Hurricanes ($2.5 million decrease),

· 2008 Hurricane Gustav ($2.2 million decrease),

· 2011 Thai floods ($1.6 million decrease),

· 2011 Japanese earthquake ($1.4 million decrease),

· 2012 Italian earthquake ($1.2 million decrease), and

· 2010 Chilean earthquake ($1.1 million decrease).

In addition, claims reported to Montpelier Bermuda during the first quarter of 2014 indicated that IBNR for natural catastrophe losses it initially recorded during 2013 exceeded the extent of losses that actually occurred, and consequently Montpelier Bermuda decreased its loss and LAE reserves by a further $9.3 million during the first quarter of 2014.

The remaining net favorable development on prior year loss reserves recognized during the three month periods ended March 31, 2015 and 2014 (other than that relating to foreign currency movements, as discussed below) related to several smaller adjustments made across multiple classes of business.

Impact of Foreign Currency Transaction Gains and Losses on Prior Year Losses and LAE Incurred

Montpelier Bermuda’s prior year losses and LAE incurred include foreign currency transaction gains (losses) relating to its prior year loss and LAE reserves of $3.3 million and $(1.4) million during the three month periods ended March 31, 2015 and 2014, respectively. Since these foreign currency transaction gains (losses) are reported as decreases (increases) in Montpelier Bermuda’s losses and LAE incurred, they have a direct impact on its underwriting results and its underwriting ratios.

Underwriting Expenses

The following table summarizes Montpelier Bermuda’s underwriting expenses for the three month periods ended March 31, 2015 and 2014:

	Three Month Periods Ended March 31,
($ in millions)	2015			2014
Acquisition costs	$	7.0		$	8.1
Acquisition cost ratio	10.3		%	10.1		%

General and administrative expenses	$	9.7		$	8.7
General and administrative expense ratio	14.3		%	10.9		%

Acquisition costs include commissions, profit commissions, brokerage costs, and excise taxes, when applicable. Profit commissions and brokerage costs can vary based on the nature of business produced. Commissions earned by Montpelier Bermuda from business that it cedes to reinsurers are recorded as reductions in its acquisition costs.

Profit commissions, which are accrued based on the estimated results of the subject contract, change as Montpelier Bermuda’s estimates of loss and LAE fluctuate. Montpelier Bermuda pays profit commissions on certain assumed reinsurance contracts, and receives profit commissions on certain ceded reinsurance contracts. Only a few of Montpelier Bermuda’s assumed and ceded reinsurance contracts contain profit commission clauses and the terms of these profit commissions are specific to the individual contracts and vary as a percentage of the contract results.

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All other acquisition costs are generally driven by contract terms and are normally a set percentage of gross premiums written. Such acquisition costs consist of commission expenses incurred on assumed business less commission revenue earned on purchased reinsurance covers. Commission revenue on purchased reinsurance covers is earned over the same period that the corresponding premiums are expensed.

Montpelier Bermuda’s acquisition cost ratio for the three month period ended March 31, 2015 was largely consistent with that of the comparable 2014 period. Montpelier Bermuda recorded net profit commission benefits of $2.1 million and $1.8 million during the three month periods ended March 31, 2015 and 2014, respectively.

The following table summarizes Montpelier Bermuda’s general and administrative expenses during the three month periods ended March 31, 2015 and 2014:

	Three Month Periods Ended March 31,
(Millions)	2015		2014

Operating expenses	$	7.0	$	6.8
Incentive compensation expenses	2.7		1.9

General and administrative expenses	$	9.7	$	8.7

Operating expenses incurred by Montpelier Bermuda during the first quarter of 2015 were consistent with those of the comparable 2014 period.

Incentive compensation expenses recorded at Montpelier Bermuda consist of two independent components. The first component represents amounts that are not, or are no longer, dependent on Company performance, and consist of: (i) Fixed RSUs and Variable RSUs granted in prior years that have been effectively converted to Fixed RSUs; and (ii) the portion of annual employee cash bonuses that is based on individual employee performance goals. The second component represents amounts that are entirely dependent on Company performance and consist of: (i) Variable RSUs in the Initial RSU Period; and (ii) the portion of annual employee cash bonuses that is based on Company performance.

Montpelier Bermuda’s incentive compensation expenses incurred during the first quarter of 2015 increased versus those of the comparable 2014 period, primarily as a result of a greater number of Fixed RSUs outstanding.

MONTPELIER AT LLOYD’S

Underwriting results for Montpelier at Lloyd’s for the three month periods ended March 31, 2015 and 2014 were as follows:

	Three Month Periods Ended March 31,
($ in millions)	2015			2014

Gross premiums written	$	77.5		$	74.1
Ceded reinsurance premiums	(15.8		)	(8.7		)
Net premiums written	61.7			65.4
Change in net unearned premiums	(1.9		)	(9.3		)
Net premiums earned	59.8			56.1

Loss and LAE - current year losses	(39.8		)	(35.7		)
Loss and LAE - prior year losses	(2.4		)	9.0
Acquisition costs	(15.9		)	(12.9		)
General and administrative expenses	(9.1		)	(8.8		)
Underwriting income (loss)	$	(7.4	)	$	7.7

Loss and LAE ratio	70.5		%	47.6		%
Acquisition cost ratio	26.6		%	23.0		%
General and administrative expense ratio	15.2		%	15.7		%

GAAP combined ratio	112.3		%	86.3		%

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Gross and Net Premiums Written

The following table summarizes Montpelier at Lloyd’s premium writings, by line of business, for the three month periods ended March 31, 2015 and 2014:

	Three Month Periods Ended March 31,
($ in millions)	2015					2014

Property Catastrophe - Treaty	$	1.3		2	%	$	2.9		4	%
Property Specialty - Treaty	0.9			1		1.3			2
Other Specialty - Treaty	21.4			27		21.6			29
Property and Specialty Individual Risk	53.9			70		48.3			65

Gross premiums written	77.5			100	%	74.1			100	%
Ceded reinsurance premiums	(15.8		)			(8.7		)
Net premiums written	$	61.7				$	65.4

Note - Montpelier at Lloyd’s reinsurance premiums ceded during the periods presented include amounts ceded to Montpelier Bermuda pursuant to inter-segment reinsurance agreements that are eliminated in consolidation. See “Corporate and Other” under this Item 2.

Gross premiums written within Montpelier at Lloyd’s increased 5% during the three month period ended March 31, 2015 versus the comparable 2014 period. This increase was driven by an expansion of writings within Montpelier at Lloyd’s political risk, direct property and engineering classes of business, all of which are reflected in Property and Specialty Individual Risk.

Net premiums written and earned by Montpelier at Lloyd’s included increases in reinstatements of $1.3 million and $1.0 million during the three month periods ended March 31, 2015 and 2014, respectively. The level of reinstatement premium that Montpelier at Lloyd’s may realize in future periods will be dependent upon the occurrence of future losses.

Montpelier at Lloyd’s purchases reinsurance in the normal course of its business in order to manage its exposures. The amount and type of reinsurance that Montpelier at Lloyd’s purchases is dependent on a variety of factors, including the cost of a particular reinsurance cover and the nature of its gross premiums written during a particular period. Other factors affect Montpelier at Lloyd’s appetite and capacity to write and retain risk. These include the impact of changes in frequency and severity assumptions used in our models and the corresponding pricing required to meet our return targets, evolving industry-wide capital requirements, increased competition, market conditions and other considerations.

All of Montpelier at Lloyd’s reinsurance purchases to date have represented prospective cover; that is, reinsurance has been purchased to protect Montpelier at Lloyd’s against the risk of future losses as opposed to covering losses that have already occurred but have not been paid. Montpelier at Lloyd’s purchases: (i) excess-of-loss reinsurance covering one or more lines of its business; and (ii) quota share reinsurance with respect to specific lines of its business.

Net Premiums Earned

Net premiums earned at Montpelier at Lloyd’s were $59.8 million and $56.1 million during the three month periods ended March 31, 2015 and 2014, respectively. Net premiums earned are primarily a function of the amount and timing of net premiums previously written.

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Loss and LAE Reserve Movements

The following table summarizes Montpelier at Lloyd’s loss and LAE reserve movements for the three month periods ended March 31, 2015 and 2014:

	Three Month Periods Ended March 31,
(Millions)	2015			2014

Gross unpaid loss and LAE reserves - beginning	$	349.8		$	337.3
Reinsurance recoverable on unpaid losses - beginning	(18.1		)	(23.3		)
Net unpaid loss and LAE reserves - beginning	331.7			314.0

Losses and LAE incurred:
Current year losses	39.8			35.7
Prior year losses	2.4			(9.0		)
Total losses and LAE incurred	42.2			26.7

Net foreign currency translation movements on loss and LAE reserves	(16.6		)	2.1

Losses and LAE paid and approved for payment	(32.3		)	(23.2		)

Net unpaid loss and LAE reserves - ending	325.0			319.6
Reinsurance recoverable on unpaid losses - ending	18.3			19.3

Gross unpaid loss and LAE reserves - ending	$	343.3		$	338.9

Note - Montpelier at Lloyd’s ending reinsurance recoverable on unpaid losses at March 31, 2015 and December 31, 2014 include amounts recoverable from Montpelier Bermuda of $6.6 million and $8.6 million, respectively, pursuant to inter-segment reinsurance arrangements which are eliminated in consolidation.

The following table summarizes Montpelier at Lloyd’s net loss and LAE ratios for the three month periods ended March 31, 2015 and 2014:

	Three Month Periods Ended March 31,
	2015		2014

Loss and LAE ratio - current year	66.5	%	63.6	%
Loss and LAE ratio - prior year	4.0	%	(16.0	)%

Loss and LAE ratio	70.5	%	47.6	%

Losses and LAE Incurred - three month periods ended March 31, 2015 and 2014

Current Year Loss and LAE Events

During the three month periods ended March 31, 2015 and 2014, Montpelier at Lloyd’s incurred $39.8 million and $35.7 million in current year net losses and LAE, respectively. The majority of Montpelier at Lloyd’s 2015 and 2014 current year losses and LAE related to claims and events that had been incurred during those periods, but had not yet been reported to us. There were no individually significant known loss events impacting Montpelier at Lloyd’s during each of the periods presented.

Prior Year Loss and LAE Development

During the three month period ended March 31, 2015, Montpelier at Lloyd’s experienced $2.4 million of net adverse development on prior year loss and LAE reserves. This adverse development was primarily the result of foreign currency transaction losses as described below. Partially offsetting this adverse development was favorable development on losses previously recognized during 2014. Claims reported to Montpelier during the first quarter of 2015 indicated that IBNR for natural catastrophe losses it initially recorded during 2014 exceeded the extent of losses that actually occurred, and consequently Montpelier decreased its loss and LAE reserves by $3.0 million.

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During the first quarter of 2014, Montpelier at Lloyd’s experienced $9.0 million of net favorable development on prior year loss and LAE reserves. This primarily resulted from actual claims reported to Montpelier at Lloyd’s during the first quarter of 2014 being less than the amount of IBNR it initially provided for such claims in prior years. Consequently, Montpelier at Lloyd’s decreased its loss and LAE reserves, specifically those related to the Property and Specialty Individual Risk and Other Property Speciality - Treaty lines of business, by $5.8 million and $2.3 million, respectively.

Impact of Foreign Currency Transaction Gains and Losses on Prior Year Loss and LAE Reserves

Montpelier at Lloyd’s prior year losses and LAE incurred included foreign currency transaction gains (losses) relating to its prior year loss and LAE reserves of $(7.3) million and $1.9 million during the three month periods ended March 31, 2015 and 2014, respectively. Since these foreign currency transaction gains (losses) are reported as decreases (increases) in Montpelier at Lloyd’s losses and LAE incurred, they have a direct impact on its reported underwriting results and its underwriting ratios.

For the three month period ended March 31, 2015, Montpelier at Lloyd’s loss and LAE ratio of 70.5% (as well as its combined ratio of 112.3%) included a 12.2 percentage point detriment relating to net foreign currency transaction losses on its prior year loss and LAE reserves. For the three month period ended March 31, 2014, Montpelier at Lloyds’ loss and LAE and combined ratios were largely unaffected by foreign currency transaction gains or losses on its prior year loss and LAE reserves.

Since a significant portion of Montpelier at Lloyd’s loss and LAE reserves are denominated in U.S. dollars, changes in the value of the British pound (Montpelier at Lloyd’s functional currency) relative to the U.S. dollar generate foreign currency transaction gains or losses within its losses and LAE incurred upon the conversion of these U.S. dollar-denominated liabilities to British pounds. However, the subsequent translation of these liabilities back into U.S. dollars in consolidation generates substantially offsetting foreign currency translation gains and losses, which are recorded as part of comprehensive income. Therefore, in periods in which there are meaningful movements in the relative value of the British pound versus the U.S. dollar, which was the case in the three month period ended March 31, 2015, the resulting impact to Montpelier at Lloyd’s losses and LAE incurred (as well as its loss and LAE and combined ratios) can significantly impact its reported underwriting performance without necessarily impacting the Company’s comprehensive income or shareholders’ equity.

Impact of Foreign Currency Translation Gains and Losses on Loss and LAE Reserves

Montpelier at Lloyd’s loss and LAE reserves included foreign currency translation gains (losses) of $16.6 million and $(2.1) million during the three month periods ended March 31, 2015 and 2014, respectively. Since these foreign currency translation losses are reported as increases in Montpelier at Lloyd’s net change in foreign currency translation, which is a component of its comprehensive income or loss, they have no impact on its reported underwriting results or its underwriting ratios.

Underwriting Expenses

The following table summarizes Montpelier at Lloyd’s underwriting expenses for the three month periods ended March 31, 2015 and 2014:

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	Three Month Periods Ended March 31,
($ in millions)	2015			2014

Acquisition costs	$	15.9		$	12.9
Acquisition cost ratio	26.6		%	23.0		%

General and administrative expenses	$	9.1		$	8.8
General and administrative expense ratio	15.2		%	15.7		%

Acquisition costs include commissions, profit commissions, brokerage costs, and excise taxes, when applicable. Profit commissions and brokerage costs can vary based on the nature of business produced. Commissions earned by Montpelier at Lloyd’s from business that it cedes to reinsurers are recorded as reductions in its acquisition costs.

Profit commissions, which are paid by assuming companies to ceding companies in the event of favorable loss experience, change as Montpelier at Lloyd’s estimates of loss and LAE fluctuate and are accrued based on the estimated results of the subject contract. Profit commission increases (decreases) totaled $1.1 million and $(0.8) million for the three month periods ended March 31, 2015 and 2014, respectively.

All other acquisition costs incurred by Montpelier at Lloyd’s are generally driven by contract terms and are normally a set percentage of gross premiums written. Such acquisition costs consist of commission expenses incurred on assumed business and commission revenue earned on purchased reinsurance covers, all of which are earned over the same period that the corresponding premiums are expensed.

Absent the impact of profit commissions, Montpelier at Lloyd’s acquisition cost ratio in the first quarter of 2015 was largely consistent with that of the comparable 2014 period.

The following table summarizes Montpelier at Lloyd’s general and administrative expenses during the three month periods ended March 31, 2015 and 2014:

	Three Month Periods Ended March 31,
(Millions)	2015		2014

Operating expenses	$	7.2	$	6.9
Incentive compensation expenses	1.9		1.9

General and administrative expenses	$	9.1	$	8.8

Montpelier at Lloyd’s operating expenses incurred during the first quarter of 2015 were largely consistent with the comparable 2014 period.

Incentive compensation expenses recorded at Montpelier at Lloyd’s consist of two independent components. The first component represents amounts that are not, or are no longer, dependent on Company performance, and consist of: (i) Fixed RSUs and Variable RSUs granted in prior years that have been effectively converted to Fixed RSUs; and (ii) the portion of annual employee cash bonuses that is based on individual employee performance goals. The second component represents amounts that are entirely dependent on Company performance and consist of: (i) Variable RSUs in the Initial RSU Period; and (ii) the portion of annual employee cash bonuses that is based on Company performance.

Montpelier at Lloyd’s incentive compensation expenses incurred during the first quarter of 2015 were consistent with those of the comparable 2014 period since the impact of having a greater number of Fixed RSUs outstanding for continuing employees during the 2015 period was offset by RSU forfeitures from departing employees and certain other related adjustments.

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COLLATERALIZED REINSURANCE

Underwriting results for the Collateralized Reinsurance segment for the three month periods ended March 31, 2015 and 2014 were as follows:

	Three Month Periods Ended March 31,
($ in millions)	2015			2014

Gross premiums written	$	34.5		$	34.0
Ceded reinsurance premiums	—			—
Net premiums written	34.5			34.0
Change in net unearned premiums	(11.7		)	(13.6		)
Net premiums earned	22.8			20.4

Loss and LAE — current year losses	(1.8		)	(1.0		)
Loss and LAE — prior year losses	(0.4		)	0.2
Acquisition costs	(4.7		)	(3.8		)
General and administrative expenses	(1.5		)	(1.5		)

Underwriting income	$	14.4		$	14.3

Loss and LAE ratio	9.7		%	3.9		%
Acquisition cost ratio	20.6		%	18.6		%
General and administrative expense ratio	6.6		%	7.4		%

GAAP combined ratio	36.9		%	29.9		%

Since the commencement of its operations in June 2012, the Collateralized Reinsurance segment has assumed natural catastrophe exposures from third-parties and Montpelier Re (pursuant to inter-segment reinsurance arrangements), all of which is reflected within the Property Catastrophe - Treaty line of business.

Gross and Net Premiums Written

Gross premiums written within Collateralized Reinsurance during the three month period ended March 31, 2015 were highly consistent with those written during the comparable 2014 period.

Net reinstatement premiums earned within the Collateralized Reinsurance segment were not significant in any of the periods presented. The level of reinstatement premiums that the Collateralized Reinsurance segment may realize in future periods will be dependent upon the occurrence of future losses; however, any such reinstatement premiums are not expected to be material.

The Collateralized Reinsurance segment did not ceded any of its premiums to third-party reinsurers during the periods presented.

Net Premiums Earned

Net premiums earned by the Collateralized Reinsurance segment were $22.8 million and $20.4 million during the three month periods ended March 31, 2015 and 2014, respectively. Premiums earned are primarily a function of the amount and timing of net premiums previously written.

Loss and LAE Reserve Movements

The following table summarizes Collateralized Reinsurance’s loss and LAE reserve movements for the three month periods ended March 31, 2015 and 2014:

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	Three Month Periods Ended March 31,
(Millions)	2015			2014

Gross and net unpaid loss and LAE reserves - beginning	$	12.5		$	0.6

Losses and LAE incurred:
Current year losses	1.8			1.0
Prior year losses	0.4			(0.2		)
Total losses and LAE incurred	2.2			0.8

Losses and LAE paid and approved for payment	(2.8		)	0.1

Gross and net unpaid loss and LAE reserves - ending	$	11.9		$	1.5

Note - Collateralized Reinsurance’s ending reinsurance recoverable on unpaid losses at March 31, 2015 and December 31, 2014, include losses assumed from Montpelier Bermuda in the amount of $8.5 million and $6.1 million, respectively, pursuant to inter-segment reinsurance arrangements which are eliminated in consolidation

Collateralized Reinsurance’s underwriting results for the three month periods ended March 31, 2015 and 2014 included $2.2 million and $0.8 million of net losses and LAE incurred, respectively. There were no individual loss events known to have a significant impact on Collateralized Reinsurance’s underwriting results during the periods presented.

Collateralized Reinsurance’s net adverse (favorable) development on prior year loss and LAE reserves was not significant during any of the periods presented.

Underwriting Expenses

The following table summarizes Collateralized Reinsurance’s underwriting expenses for the three month periods ended March 31, 2015 and 2014:

	Three Month Periods Ended March 31,
($ in millions)	2015			2014

Acquisition costs	$	4.7		$	3.8
Acquisition cost ratio	20.6		%	18.6		%

General and administrative expenses	$	1.5		$	1.5
General and administrative expense ratio	6.6		%	7.4		%

Collateralized Re’s acquisition costs include commissions, profit commissions, brokerage costs and excise taxes, when applicable. Profit commissions and brokerage costs can vary based on the nature of business produced.

Profit commissions, which are paid by assuming companies to ceding companies in the event of a favorable loss experience, change as Collateralized Reinsurance’s estimates of loss and LAE fluctuate. During the three month periods ended March 31, 2015 and 2014, the Collateralized Reinsurance segment incurred $1.0 million and $0.9 million, respectively, in profit commissions.

All other acquisition costs incurred by the Collateralized Reinsurance segment are generally driven by contract terms and are normally a set percentage of gross premiums written. Such acquisition costs consist of commission expenses incurred on assumed business less commission revenue earned on purchased reinsurance covers, if any, all of which are earned over the same period that the corresponding premiums are expensed.

Collateralized Reinsurance’s acquisition cost ratio for the three month period ended March 31, 2015 was higher than that of the comparable 2014 period, reflecting a higher proportion of specialized quota share reinsurance business assumed by the Collateralized Reinsurance segment from the Montpelier Bermuda segment during the 2015 period.

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The following table summarizes the Collateralized Reinsurance segment’s general and administrative expenses during the three month periods ended March 31, 2015 and 2014:

	Three Month Periods Ended March 31,
(Millions)	2015		2014

Operating expenses	$	0.8	$	1.0
Incentive compensation expenses	0.7		0.5

General and administrative expenses	$	1.5	$	1.5

The Collateralized Reinsurance segment’s general and administrative expenses consist primarily of third-party legal, consulting costs and director fees, as well as personnel costs. The General and Administrative expenses incurred by Collateralized Reinsurance during the first quarter of 2015 were largely consistent with those of the comparable 2014 period.

CORPORATE AND OTHER

Corporate and Other, which collectively represents the Company, certain intermediate holding and service companies, the Company’s former MUSIC Run-Off segment and eliminations relating to intercompany reinsurance and service charges, is not considered to be an operating segment. The underwriting losses generated by Corporate and Other principally reflect general and administrative expenses incurred in support of the Company’s various operating companies.

Our Corporate and Other results for the three month periods ended March 31, 2015 and 2014 were as follows:

	Three Month Periods Ended March 31,
(Millions)	2015			2014

Gross premiums written	$	(11.2	)	$	(8.5	)
Ceded reinsurance premiums	11.2			8.5
Net premiums written	—			—
Change in net unearned premiums	—			—
Net premiums earned	—			—

Loss and LAE — current year losses	—			—
Loss and LAE — prior year losses	(2.4		)	—
Acquisition costs	—			—
General and administrative expenses	(8.6		)	(7.8		)
Underwriting loss	$	(11.0	)	$	(7.8	)

The premium activity reflected within Corporate and Other represent the elimination of inter-segment reinsurance arrangements between Montpelier Bermuda and Montpelier at Lloyd’s, and between Montpelier Bermuda and Collateralized Reinsurance, and (ii) premium adjustments relating to policies written by MUSIC on or prior to December 31, 2011, which were not significant during the periods presented.

The premium eliminations relating to inter-segment reinsurance arrangements recorded within Corporate and Other during the periods presented were as follows:

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	Three Month Period Ended March 31, 2015									Three Month Period Ended March 31, 2014
(Millions)	Gross premiums written			Ceded reins. premiums			Net premiums written			Gross premiums written		Ceded reins. premiums			Net premiums written

Montpelier Bermuda	$	(0.2	)	$	(11.4	)	$	(11.6	)	$	0.3	$	(8.2	)	$	(7.9	)
Montpelier at Lloyd’s	—			0.2			0.2			—		(0.3		)	(0.3		)
Collateralized Reinsurance	11.4			—			11.4			8.2		—			8.2
Total inter-segment premiums	$	11.2		$	(11.2	)	$	—		$	8.5	$	(8.5	)	$	—

The loss and LAE incurred within Corporate and Other represent losses associated with the business retained in connection with the MUSIC Sale. There were no individually significant losses or loss events associated with the adverse prior year loss development on the reserves recorded during the first quarter of 2015.

The following table summarizes the general and administrative expenses of Corporate and Other during the three month periods ended March 31, 2015 and 2014:

	Three Month Periods Ended March 31,
(Millions)	2015		2014

Operating expenses	$	5.8	$	6.2
Incentive compensation expenses	2.8		1.6
General and administrative expenses	$	8.6	$	7.8

Operating expenses recorded within Corporate and Other include salaries and benefits, information technology costs, director fees, legal and consulting expenses, corporate insurance premiums, audit fees and fees associated with the Company and BCRH being publicly traded companies.

The decrease in operating expenses incurred during the three month period ended March 31, 2015, as compared to the first quarter of 2014, was primarily the result of a decrease in routine legal and other professional fees incurred during the 2015 period. Note that the Company did incur non-routine, Merger-related expenses of this nature during the first quarter of 2015, which were included in other expenses (non-underwriting) within the Company’s Consolidated Statements of Operations and Comprehensive Income.

Incentive compensation expenses recorded within Corporate and Other consist of two independent components. The first component represents amounts that are not, or are no longer, dependent on Company performance, and consist of: (i) Fixed RSUs and Variable RSUs granted in prior years that have been effectively converted to Fixed RSUs; and (ii) the portion of annual employee cash bonuses that is based on individual employee performance goals. The second component represents amounts that are entirely dependent on Company performance and consist of: (i) Variable RSUs in the Initial RSU Period; and (ii) the portion of annual employee cash bonuses that is based on Company performance.

Corporate and Other’s incentive compensation expenses incurred during the first quarter of 2015 increased versus those of the comparable 2014 period, primarily as a result of: (i) a greater number of employee and director Fixed RSUs outstanding during the 2015 period; and (ii) RSU forfeitures from departing employees recognized during the 2014 period.

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II. Review of Non-Underwriting Results - Consolidated

Net Investment Income and Total Return on Cash and Investments

The following table summarizes our net investment income and total return on cash and investments for the three month periods ended March 31, 2015 and 2014:

	Three Month Periods Ended March 31,
($ in millions)	2015			2014

Investment income	$	10.9		$	15.3
Investment expenses	(1.1		)	(2.4		)
Net investment income	9.8			12.9
Net realized investment gains (losses)	6.7			(0.1		)
Net unrealized investment gains	7.1			22.8
Net income (loss) from investment-related derivative instruments:
Foreign Exchange Contracts - investment activities	1.6			(5.6		)
Credit Derivatives	(2.4		)	(2.9		)
Interest Rate Contracts	(0.4		)	2.5
Investment Options and Futures	(0.6		)	(0.8		)
Net foreign currency transaction gains (losses) - investing activities	(1.2		)	1.8
Total return on cash and investments ($)	$	20.6		$	30.6

Weighted average investment portfolio value including cash	$	3,139		$	3,170
Total investment return on cash and investments (%)	0.7		%	1.0		%

Weighted average investment portfolio value including cash, as adjusted (1)	$	2,677		$	2,763
Total investment return on cash and investments (%), as adjusted (1)	0.8		%	1.1		%

(1) Our weighted average investment portfolio and investment return calculations, as adjusted, exclude the cash, cash equivalents and short-term investments ($461.7 million and $406.8 million during the three month periods ended March 31, 2015 and 2014, respectively) which relate to our Collateralized Reinsurance segment. These assets are earmarked for the benefit of our Collateralized Reinsurance segments cedants and counterparties and are not intended to provide Montpelier or its cedants and counterparties with any investment return.

Our total return on cash and investments during the three month period ended March 31, 2015 was lower than that of the corresponding 2014 period, due primarily to lower net realized and unrealized gains experienced during the 2015 period.

Our investment income decreased during the 2015 period, versus the corresponding 2014 period, due mainly to: (i) declines in market interest rates; and (ii) declines in the weighted average investment portfolio. Our investment expenses during the 2015 period were less that those of the corresponding 2014 period due to recent investments made in the form of investment funds (whose management fees are netted against the funds’ investment performance).

During the first quarter of 2015 we experienced $13.8 million of net realized and unrealized investment gains consisting of $9.3 million in net gains from our fixed maturity portfolio, $3.3 million in net gains from our equity portfolio and $1.2 million in net gains from our other investments. The fixed maturity net gains we experienced during the first quarter of 2015 were largely the result of a decline in market interest rates. The equity portfolio net gains we experienced during the first quarter of 2015 followed a trend consistent with global equity markets. The other investment net gains we experienced during the first quarter of 2015 related primarily to a limited partnership investment that invests in distressed debt instruments.

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During the first quarter of 2014 we experienced $22.7 million of net realized and unrealized investment gains consisting of $15.3 million in net gains from our fixed maturity portfolio, $3.6 million in net gains from our equity portfolio and $3.8 million in net gains from our other investments. The fixed maturity net gains we experienced during the first quarter of 2014 were largely the result of a decline in the U.S. Treasury yield curve. The equity portfolio net gains we experienced during the first quarter of 2014 followed a trend consistent with that of the U.S. equity market, as measured by the S&P 500, when considering that we increased our portfolio allocation to equity securities mid-quarter. The other investment net gains we experienced during the first quarter of 2014 related primarily to a limited partnership investment that invests in distressed debt instruments.

Certain of our investment managers have entered into derivative contracts for investment purposes. Our total net loss from investment-related derivative instruments was $1.8 million and $6.8 million during the three month periods ended March 31, 2015 and 2014, respectively. Each of our derivative instruments, as well as the income and loss derived therefrom, is described in Note 6 of the Notes to Consolidated Financial Statements.

During the three month periods ended March 31, 2015 and 2014, we experienced net foreign currency transaction gains (losses) on cash and investments (those in connection with our investing activities) of $(1.2) million and $1.8 million, respectively. These foreign currency transaction gains and losses represent foreign currency exchange fluctuations in the value of our non-U.S. dollar managed cash and investments.

Our investments classified as Level 3 securities (as defined in GAAP) as of March 31, 2015, December 31, 2014 and March 31, 2014 consisted primarily of the following: (i) with respect to certain fixed maturity investments, bank loans and certain asset-backed securities, many of which are not actively traded; and (ii) with respect to other investments, certain investments in investment funds and limited partnerships. Our Level 3 securities measured at fair value represented 5.2% ($115.5 million), 3.9% ($83.8 million) and 0.9% ($24.4 million) of our total invested assets measured at fair value as of March 31, 2015, December 31, 2014 and March 31, 2014, respectively. The increase in our level 3 securities from those of the first quarter of 2014 primarily reflects the addition of an investment fund that cannot be readily redeemed due to lock-up restrictions.

As of March 31, 2015, we held net sovereign, corporate and asset-backed fixed maturity investments with exposure to the Eurozone with a fair value of $125.7 million (amortized cost of $125.9 million). Of our total Eurozone holdings at March 31, 2015, $31.6 million (amortized cost $31.4 million) represented net debt obligations of financial corporations.

Net Foreign Currency Gains (Losses)

The following table summarizes the components of our consolidated net foreign currency gains (losses) for the three month periods ended March 31, 2015 and 2014:

	Three Month Periods Ended March 31,
(Millions)	2015			2014

Net foreign currency transaction gains (losses) - investing activities	$	(1.2	)	$	1.8
Net foreign currency transaction gains (losses) - other activities	7.4			(3.6		)

Net foreign currency gains (losses)	$	6.2		$	(1.8	)

See “Net Investment Income and Total Return on Cash and Investments” above for details of our net foreign currency transaction gains (losses) we experienced in connection with our investing activities during the periods presented.

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The net foreign currency transaction gains (losses) we experienced in connection with our other activities represent net foreign currency gains and losses resulting from: (i) Montpelier Bermuda’s premiums receivable that are denominated in currencies other than the U.S. dollar (its functional currency); and (ii) Montpelier at Lloyd’s assets and liabilities that are denominated in currencies other than the British pound (its functional currency), including those denominated in U.S. dollars. These net transaction gains and losses do not include: (i) fluctuations associated with Montpelier Bermuda’s and Montpelier at Lloyd’s losses and LAE, which we record as favorable or unfavorable loss reserve development; (ii) the income or loss associated with those Foreign Exchange Contracts we enter into in order to mitigate the financial effects of certain foreign currency exchange rate fluctuations, see “Net Losses From Derivative Instruments”; and (iii) any offsetting foreign currency translation gains and losses we recognize through our comprehensive income or loss associated with Montpelier at Lloyd’s assets and liabilities that are denominated in U.S. dollars.

The net foreign currency transaction gains (losses) we experienced during the periods presented associated with our other activities were primarily due to a strengthening (weakening) of the U.S. dollar against the British pound. During the first quarter of 2015, a period in which there was a significant strengthening of the U.S. dollar against the British pound, the net foreign currency transaction gains we incurred during that period were particularly pronounced.

Net Losses From Derivative Instruments

Our consolidated net losses from derivative instruments were $3.5 million and $5.1 million during the three month periods ended March 31, 2015 and 2014, respectively. Each of our derivative instruments, as well as the net income and loss derived therefrom during the periods presented, is described in Note 6 of the Notes to Consolidated Financial Statements.

Other Revenues

Our consolidated other revenues of $1.4 million and $0.3 million for the three month periods ended March 31, 2015 and 2014, respectively, represented: (i) for the 2015 period, non-underwriting income associated with Cladium; and (ii) for the 2014 period, equity in the earnings of a specialty managing general agency in which we hold a minority investment.

Interest and Other Financing Expenses

The following table summarizes our consolidated interest and other financing expenses for the three month periods ended March 31, 2015 and 2014:

	Three Month Periods Ended March 31,
(Millions)	2015		2014

Interest expense - Senior Notes	$	3.5	$	3.5
Interest expense - Trust Preferred Securities	1.0		1.0
Letter of credit fees, trust fees and amortization of debt issuance costs	0.2		0.2

Interest and other financing expenses	$	4.7	$	4.7

Our other interest and financing expenses consist of interest expense and commitment fees associated with the BCRH Credit Agreement, trust fees and amortization of debt issuance costs.

Our interest and other financing expenses during the three month period ended March 31, 2015 were highly consistent with those of the corresponding 2014 period.

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Other Expenses

The following table summarizes our consolidated other expenses for the three month periods ended March 31, 2015, and 2014:

	Three Month Periods Ended March 31,
(Millions)	2015		2014

Merger-related expenses	$	3.4	$	—
Cladium operating expenses	1.0		—
Expenses from the Loss Development Cover	0.2		—
Other non-underwriting expenses	0.2		—

Other expenses	$	4.8	$	—

Our consolidated other expenses for the three month period ended March 31, 2015 consisted primarily of: (i) investment banking, legal fees and other Merger-related expenses; (ii) non-underwriting operating expenses associated with Cladium; (iii) a provision for our ongoing obligation to Selective in connection with the MUSIC Sale pursuant to the Loss Development Cover; and (iv) amortization of an intangible asset associated with Cladium.

Income Tax Benefit (Provision)

We are domiciled in Bermuda and have subsidiaries that are domiciled in the U.S. and the U.K. At the present time, no income taxes are levied in Bermuda and the Company and its Bermuda-domiciled subsidiaries have received an assurance from the Bermuda Minister of Finance exempting them from all Bermuda-imposed income, withholding and capital gains taxes until March 31, 2035.

During the three month periods ended March 31, 2015 and 2014, we recorded an income tax benefit (provision) of $(1.0) million and $0.1 million, respectively. During each of these periods, the income tax movements were associated primarily with our U.K. operations. See Note 13 of the Notes to Consolidated Financial Statements.

Our Bermuda operations are not subject to Bermuda income taxes. During the three month periods ended March 31, 2015 and 2014, these operations had pretax income of $61.1 million and $105.2 million, respectively.

Our U.K. operations are subject to U.K. income taxes. During the three month periods ended March 31, 2015 and 2014, these operations had pretax income (losses) of $2.9 million and $(2.9) million, respectively. During the three month periods ending March 31, 2015 and 2014, the entities within our U.K. group recorded net income tax benefit (provisions) totaling $(0.8) million and $0.1 million, respectively.

Our U.S. operations are subject to U.S. Federal income taxes but are in a cumulative net operating loss position so no Federal income tax provisions or benefits are currently being recognized. During the three month periods ended March 31, 2015 and 2014, these operations had pretax income (losses) of $0.7 million and (0.2) million, respectively.

Our U.S. operations are also subject to U.S. Federal alternative minimum tax, and state and local income taxes which totaled $0.2 million and less than $0.1 million during the three month periods ended March 31, 2015 and 2014, respectively.

Net Income Attributable to Non-Controlling Interests

The following table summarizes the net income attributable to non-controlling interests during the three month periods ended March 31, 2015 and 2014:

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	Three Month Periods Ended March 31,
(Millions)	2015		2014

Income attributable to third-party investments in the BCGR Cell	$	4.6	$	4.7
Income attributable to third-party investments in BCRH	3.7		4.3

Net income attributable to non-controlling interests	$	8.3	$	9.0

Dividends Declared on Preferred Shares

During each of the three month periods ended March 31, 2015 and 2014, we declared $3.3 million of dividends on our Preferred Shares.

Liquidity and Capital Resources

Liquidity

The Company has no operations of its own and relies on dividends and distributions from its subsidiaries to pay its operating expenses, interest on debt, dividends to holders of Preferred Shares and Common Shares and to fund any Common Share repurchase activities. There are restrictions on the payment of dividends to the Company from its regulated operating and holding companies. See Note 13 of the Notes to Consolidated Financial Statements. Our Preferred Shares have a stated dividend rate of 8.875% per year and, beginning in September 2014, we raised our quarterly Common Share dividend to $0.20 per share. Any future determination to pay dividends to holders of Common Shares and Preferred Shares will, however, be at the discretion of the Board and will be dependent upon many factors, including our results of operations, cash flows, financial position, capital requirements, general business opportunities, and legal, tax, regulatory and contractual restrictions.

The primary sources of cash for our regulated operating subsidiaries are premium collections, investment income, sales and maturities of investments and reinsurance recoveries. The primary uses of cash for our operating subsidiaries are payments of losses and LAE, acquisition costs, operating expenses, ceded reinsurance, investment purchases and dividends and distributions paid to the Company.

As a provider of short-tail insurance and reinsurance, mainly from natural and man-made catastrophes, we could be required to pay significant losses on short notice. As a result, we have structured our investment portfolio with high-quality fixed maturity securities with a short average duration in order to reduce our sensitivity to interest rate fluctuations and to provide adequate liquidity for the settlement of our liabilities. As of March 31, 2015, the average duration of our investment portfolio, including cash and cash equivalents, was 1.0 years (inclusive of relevant derivative and short positions). If our calculations with respect to the timing of the payment of our liabilities are incorrect, or if we improperly structure our investment portfolios, we could be forced to liquidate our investments at inopportune times, potentially at a significant loss.

As of March 31, 2015, our sources of immediate and unencumbered liquidity consisted of: (i) $72.8 million of cash and cash equivalents; (ii) $88.6 million of highly liquid fixed maturity investments which currently trade at a very narrow bid-ask spread and whose proceeds are available within two business days; and (iii) $184.4 million of publicly-traded equity securities whose proceeds are available within four business days. Further, we believe that we have significant sources of additional liquidity within our fixed maturity investment and other investment portfolios, although the bid-ask spreads associated with such investment securities could be broader, perhaps significantly, than those with respect to the securities referred to above, particularly if a large individual investment were required to be liquidated in an expeditious manner.

The Company does not have a revolving credit facility for its own purposes because its current cash and cash equivalent balances and projected future cash flows from its operations are expected to be sufficient to cover its cash obligations under most loss scenarios through the foreseeable future.

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On May 2, 2014, BCRH entered into the BCRH 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 BCRH 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.

The Company serves as a guarantor for the BCRH Credit Agreement and is entitled to receive an annual guarantee fee from BCRH equal to 0.125% of the facility’s total capacity. See Note 14 of the Notes to Consolidated Financial Statements.

As of March 31, 2015, BCRH had $4.0 million of outstanding borrowings under the BCRH Credit Agreement which must be repaid or extended, in the form of a new borrowing, no later than November 2, 2015. See Note 5 of the Notes to Consolidated Financial Statements.

BCRH intends to repay the remaining $4.0 million of its outstanding borrowings under the BCRH Credit Agreement with funds it expects to receive from Blue Capital Re, which are expected to be made available to Blue Capital Re in the normal course through scheduled releases of funds currently held as collateral.

The BCRH Credit Agreement contains covenants that limit BCRH’s and, to a lesser extent, the Company’s ability to, among other things, grant liens on its assets, sell assets, merge or consolidate, incur debt and enter into certain transactions with affiliates. The BCRH Credit Agreement also contains covenants that require: (i) BCRH to maintain a debt to total capitalization ratio less than or equal to 22.5%; (ii) the Company to maintain a financial strength rating from Fitch of at least “BBB+”; and (iii) each of BCRH and the Company to maintain at least 70% of its net worth as of the date of the BCRH Credit Agreement. If BCRH or the Company were to fail to comply with any of these covenants, the lender could revoke the facility and exercise remedies against BCRH or the Company. As of March 31, 2015, BCRH and the Company (as a guarantor) were in compliance with each of the covenants associated with the BCRH Credit Agreement.

BCRH and the Company renewed the BCRH Credit Agreement on May 1, 2015 (the “Amended BCRH Credit Agreement”). The Amended BCRH Credit Agreement also contains certain financial covenants as well as covenants that limit BCRH’s and, to a lesser extent, the Company’s ability, among other things, to grant liens on its assets, sell assets, merge or consolidate, incur debt and enter into certain transactions with affiliates. The covenants associated with the Amended BCRH Credit Agreement were, however, amended to permit the agreement to survive the Merger.

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.

The Company serves as a guarantor of the BCGR Listed Fund’s obligations under the BCGR Credit Agreement and receives an annual guarantee fee from the BCGR Listed Fund equal to 0.125% of the facility’s total capacity.

As of March 31, 2015, the BCGR Listed Fund had no outstanding borrowings under the BCGR Credit Agreement.

The BCGR Credit Agreement contains covenants that limit the BCGR Listed Fund’s and, to a lesser extent, the Company’s ability, among other things, to grant liens on its assets, sell assets, merge or consolidate, incur debt and enter into certain transactions with affiliates. The BCGR Credit Agreement also contains a financial covenant that requires the Company to maintain a leverage ratio at or below 30%. If the Company were to fail to comply with any of these covenants, the lender could revoke the facility and exercise remedies against the Company. As of March 31, 2015, the BCGR Listed Fund and the Company (as a guarantor) were in compliance with each of the covenants associated with the BCGR Credit Agreement.

The BCGR Listed Fund and the Company currently expect to renew the BCGR Credit Agreement prior to its scheduled expiration on May 14, 2015.

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Liquidity Requirements of the Merger

Pursuant to the terms of the Merger Agreement, upon the closing of the Merger, our shareholders will be entitled to receive consideration of 0.472 common shares of Endurance and $9.89 in cash per Common Share. The cash portion of the consideration will be funded through a pre-closing dividend to be paid by us. The pre-closing dividend is expected to be approximately $450.2 million, including dividend equivalents payable to holders of RSUs.

We intend to redeem the Preferred Shares in connection with the Merger for $26.00 per share, or $156.0 million in aggregate, plus declared and unpaid dividends, if any, to the date of the redemption. See Note 7 of the Notes to Consolidated Financial Statements.

We further expect to incur approximately $14.5 million of additional Merger-related expenses in 2015.

The aggregate amount of additional cash that we will require in order to meet the foregoing Merger-related obligations is approximately $620 million. We intend to raise this cash through sales and maturities of certain of Montpelier Re’s investment securities. We currently believe that we will be able to comfortably raise these funds in an opportunistic manner over the next several weeks, primarily through: (i) sales of highly liquid fixed maturity and other investments which currently trade at a very narrow bid-ask spread; (ii) sales of publicly-traded equity securities; and (iii) maturities of fixed maturity investments. Further, we believe that we have significant sources of additional liquidity within our fixed maturity investment and other investment portfolios, if needed, although the bid-ask spreads associated with such investment securities could be broader, perhaps significantly, than those with respect to the securities referred to above, particularly if a large individual investment were required to be liquidated in an expeditious manner.

With respect to the year ending December 31, 2015, Montpelier Re has the ability to dividend and distribute (in the form of a return of capital) up to $688.7 million to the Company without BMA approval. See Note 11 of the Notes to Consolidated Financial Statements.

Dividend Restrictions of the Merger

Pursuant to the terms of the Merger Agreement, we are prohibited from declaring or paying any dividend or making other distributions, other than: (i) dividends or distributions paid by a wholly-owned subsidiary to it or its subsidiaries, (ii) quarterly cash dividends in the ordinary course of business on Common Shares and Preferred Shares with record and payment dates consistent with past practice, in an amount not to exceed $0.20 and $0.5547 per share, respectively, per quarter; and (iii) the pre-closing dividend contemplated by the Merger Agreement.

Capital Resources

The following table summarizes our capital structure (defined as our total shareholders’ equity available to the Company and our long-term debt) as of March 31, 2015 and December 31, 2014:

	March 31,		Dec. 31,
(Millions)	2015		2014

Senior Notes, at face value	$	300.0	$	300.0
Trust Preferred Securities	100.0		100.0
Total long-term debt	$	400.0	$	400.0

Preferred Shareholders’ Equity available to the Company	150.0		150.0
Common Shareholders’ Equity available to the Company	1,543.1		1,498.2
Total Capital available to the Company	$	2,093.1	$	2,048.2

Our total capital increased by $44.9 million during the three month period ended March 31, 2015 as a result of our recording comprehensive income available to the Company of $53.9 million, recognizing $3.3 million of additional paid-in capital through the amortization and issuances of share-based compensation and declaring $12.3 million in dividends to holders of Common Shares and Preferred Shares.

The 2022 Senior Notes bear interest at a fixed rate of 4.70% per annum, payable semi-annually in arrears on April 15 and October 15 of each year. We may redeem the 2022 Senior Notes at any time, in whole or in part, at a “make-whole” redemption price, plus accrued and unpaid interest.

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The Trust Preferred Securities mature on March 30, 2036, but are redeemable at our option at par. The Trust Preferred Securities bear interest at a floating rate of 3-month LIBOR plus 380 basis points, reset quarterly. We currently have no intention of redeeming the Trust Preferred Securities.

The LIBOR Swap, which we entered into in 2012, will result in the future net cash flows in connection with the Trust Preferred Securities, for the five-year period beginning March 30, 2012, being the same as if these securities bore interest at a fixed rate of 4.905%, provided we hold the LIBOR Swap to its maturity.

The Preferred Shares have no stated maturity, are not subject to any sinking fund or mandatory redemption and are not convertible into any other securities. Except in certain limited circumstances, the Preferred Shares are not redeemable prior to May 10, 2016. After that date, we may redeem the Preferred Shares at our option, in whole or in part, at a price of $25.00 per share plus any declared and unpaid dividends. We intend to redeem the Preferred Shares in connection with the Merger for $26.00 per share. See Note 7 of the Notes to Consolidated Financial Statements.

None of the 2022 Senior Notes, the Trust Preferred Securities or the Preferred Shares contain any covenants regarding financial ratios or specified levels of net worth or liquidity to which we must adhere.

We do not consider the BCRH’s short-term borrowings outstanding under the BCRH Credit Agreement that we guarantee to be a component of our capital structure.

We may need to raise additional capital in the future, through the issuance of debt, equity or hybrid securities, in order to, among other things, write new business, incur and/or pay significant losses, respond to, or comply with, changes in the capital requirements that rating agencies or various regulatory bodies use to evaluate us, acquire new businesses, invest in existing businesses or refinance our existing obligations.

The issuance of any new debt, equity or hybrid financial instruments might contain terms and conditions that are more unfavorable to us, our existing shareholders and our debtholders than those contained within our current capital structure. More specifically, any new issuances of equity or hybrid securities could include the issuance of securities with rights, preferences and privileges that are senior or otherwise superior to those of our Common and Preferred Shares and could be dilutive to our existing holders of these equity securities. Further, if we cannot obtain adequate capital on favorable terms or otherwise, our business, financial condition and operating results could be adversely affected.

Letter of Credit Facilities and Trusts

In the normal course of our business, we maintain letter of credit facilities and trust arrangements as a means of providing collateral and/or statutory credit to certain of our constituents. These facilities and arrangements are secured by collateral accounts and trusts containing cash, cash equivalents and investment securities.

The agreements governing our letter of credit facilities contain covenants that limit our ability, among other things, to grant liens on our assets, sell our assets, merge or consolidate, incur debt and enter into certain agreements. In addition, our four year committed letter of credit facility requires us to maintain a debt to capital ratio of no greater than 30% and for Montpelier Re to maintain an A.M. Best financial strength rating of no less than “B++.” If we were to fail to comply with these covenants or fail to meet these financial ratios, the lenders could revoke these facilities and exercise remedies against us. As of March 31, 2015 and December 31, 2014, we were in compliance with each of the covenants contained in our letter of credit facilities.

We established the Reinsurance Trust and the Florida Multi-Beneficiary Reinsurance Trust as a means of providing statutory credit to Montpelier Re’s cedants and we established the Lloyd’s Deposit Trust Deed as a means of satisfying Lloyd’s capital requirements. As a result of these and other trust arrangements we currently utilize, our ongoing reliance on letter of credit facilities has been significantly reduced. See Note 5 of the Notes to Consolidated Financial Statements.

Regulation and Capital Requirements

Our holding company and insurance and reinsurance operations are subject to regulation and capital requirements established by supervisors in multiple jurisdictions. See Note 11 of the Notes to Consolidated Financial Statements for detailed information concerning our regulatory and capital requirements.

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Financial Strength Ratings

Reinsurance contracts do not discharge ceding companies from their obligations to policyholders. Therefore, ceding companies often require reinsurers to have, and to maintain, strong financial strength ratings as assurance that their claims will be paid. Montpelier Re and Syndicate 5151 (in common with all Lloyd’s syndicates) each have financial strength ratings from one or more independent rating agencies, as outlined below.

The financial strength ratings of Montpelier Re and Syndicate 5151 are not evaluations directed to the investment community with regard to Common Shares, Preferred Shares or debt securities or a recommendation to buy, sell or hold such securities. Montpelier Re and Syndicate 5151’s financial strength ratings may be revised or revoked at the sole discretion of the independent rating agencies.

Montpelier Re

Montpelier Re is currently rated “A” by A.M. Best (Excellent, with a stable outlook), “A-” by Standard & Poor’s (Strong, with a positive outlook) and “A” by Fitch Ratings Ltd. (Strong, rating watch negative). “A” is the third highest of fifteen A.M. Best financial strength ratings, “A-” is the seventh highest of twenty-one Standard & Poor’s financial strength ratings and “A” is the sixth highest of twenty-four Fitch Ratings Ltd. financial strength ratings.

Montpelier Re’s ability to underwrite business is dependent upon its financial strength rating as evaluated by these independent rating agencies. In the event that Montpelier Re is downgraded below “A-” by A.M. Best or Standard & Poor’s, we believe our ability to write business through Montpelier Re would be adversely affected. In the normal course of business, we evaluate Montpelier Re’s capital needs to support the amount of business it writes in order to maintain its financial strength ratings.

A downgrade of Montpelier Re’s A.M. Best or Standard & Poor’s rating could also trigger provisions allowing some ceding companies to opt to cancel their reinsurance contracts with Montpelier Re. For the majority of contracts that incorporate rating provisions, a downgrade of below “A-” by A.M. Best, or below “A-” by Standard and Poor’s constitutes grounds for cancellation. In the event of such a downgrade, we cannot predict whether or how many of our clients would actually exercise such cancellation rights or the extent to which any such cancellations would impact Montpelier Re and the Company. See Item 1A “Risk Factors” contained in the 2014 Form 10-K, as filed with the SEC.

A downgrade of Montpelier Re’s A.M. Best financial strength rating below “B++,” would constitute an event of default under our secured letter of credit facilities.

Syndicate 5151

Syndicate 5151, as is the case with all Lloyd’s syndicates, benefits from Lloyd’s central resources, including the Lloyd’s brand, its network of global licences and the Lloyd’s New Central Fund. Pursuant to the byelaws of the Society of Lloyd’s, the Lloyd’s New Central Fund is obligated to meet any valid claim that cannot be met by the resources of the liable member. As all Lloyd’s policies are ultimately backed by this common security, the Lloyd’s single market rating is applied to all syndicates, including Syndicate 5151, equally. Lloyd’s is currently rated “A” by A.M. Best (Excellent, with a stable outlook), “A+” by Standard & Poor’s (Strong, with a stable outlook) and “AA-” by Fitch Ratings Ltd. (Very Strong, with a stable outlook). “A” is the third highest of fifteen A.M. Best financial strength ratings, “A+” is the fifth highest of twenty-one Standard & Poor’s financial strength ratings and “AA-” is the fourth highest of twenty-four Fitch Ratings Ltd. financial strength ratings.

A downgrade of Lloyd’s A.M. Best or Standard & Poor’s rating could also trigger provisions allowing some ceding companies to opt to cancel their reinsurance contracts with Syndicate 5151. For the majority of contracts that incorporate rating provisions, a downgrade of below “A-” by A.M. Best, or “A-” by Standard and Poor’s constitutes grounds for cancellation. In the event of such a downgrade, we cannot predict whether or how many of our clients would actually exercise such cancellation rights or the extent to which any such cancellations would impact Syndicate 5151 and the Company. See Item 1A “Risk Factors” contained in the 2014 Form 10-K, as filed with the SEC.

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Blue Water Re and Blue Capital Re

Blue Water Re and Blue Capital Re do not operate with a financial strength rating and, alternatively, each fully-collateralizes its reinsurance obligations.

Enterprise Risk Management (“ERM”) Rating

Our ERM infrastructure consists of the methods and processes we utilize in order to prudently manage risk in the achievement of our objectives. We consider ERM to be a key process within our organization as it helps us to identify potential events that may affect us, to quantify, evaluate and manage the risks to which we are exposed, and to provide reasonable assurance regarding the achievement of our objectives. ERM is managed by our senior management under the oversight of the Board and is implemented by personnel across our organization.

Our current ERM rating, as issued by Standard & Poor’s, is “Strong”, which is the second highest of six Standard & Poor’s ERM ratings.

Off-Balance Sheet Arrangements

The Foreign Exchange Contracts, Credit Derivatives, Interest Rate Contracts, Investment Options and Futures, certain of our ongoing obligations to Selective in connection with the MUSIC Sale and the Company’s guarantee of the BCGR Listed Fund’s obligations under the BCGR Credit Agreement each constitute off-balance sheet arrangements. Excluding these specific transactions, as of March 31, 2015, we were not subject to any off-balance sheet arrangements that we believe are material to our investors.

Cash Flows

We experienced a net increase in our cash and cash equivalents of $168.7 million and $279.0 million during the three month periods ended March 31, 2015 and 2014, respectively.

We generated $43.5 million and $55.1 million of net cash and cash equivalents from our operations during the three month periods ended March 31, 2015 and 2014, respectively, which resulted primarily from our premiums received, net of acquisition costs, exceeding our net losses paid. Our net loss and LAE payments during the three month period ended March 31, 2015 were $55.5 million, versus $63.4 million during the comparable 2014 period.

Our investing activities provided (used) net cash and cash equivalents of $139.7 million and $(99.8) million during the three month periods ended March 31, 2015 and 2014, respectively. The cash and cash equivalents provided from investing activities during the 2015 period primarily resulted from net investment sales, primarily sales of short-term fixed maturities by Blue Water Re. The cash and cash equivalents used for investing activities during the 2014 period primarily resulted from net investment purchases (representing the investment of a portion of the net proceeds from repurchase and reverse repurchase agreements).

Our financing activities provided (used) net cash and cash equivalents of $(13.2) million and $321.7 million during the three month periods ended March 31, 2015 and 2014, respectively. The decrease in cash and cash equivalents experienced during the 2015 period, versus the comparable 2014 period, is primarily due to a $397.4 million decrease in repurchase agreements outstanding; partially offset by a $66.2 million reduction in repurchases of Common Shares.

Detailed information regarding our cash flows for the three month periods ended March 31, 2015 and 2014, follows:

For the three month period ended March 31, 2015:

Our cash and cash equivalents provided from operations totaled $43.5 million.

Our cash and cash equivalents provided from investing activities totaled $139.7 million, resulting from the following:

· we received $120.2 million from net sales of investment securities,

· we paid $1.1 million in settlements of investment-related derivative instruments,

· we had a $22.4 million decrease in our restricted cash, and

· we paid $1.8 million to acquire capitalized assets.

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Our cash and cash equivalents used for financing activities totaled $13.2 million, resulting from the following:

· we received $6.8 million from third party investors in the BCGR Listed Fund,

· BCRH repaid $4.0 million of its borrowings under the BCRH Credit Agreement,

· BCRH paid $3.8 million in dividends to non-controlling holders of BCRH Common Shares, and

· we paid $12.2 million in dividends to holders of Common Shares and Preferred Shares.

We also experienced a $1.3 million decrease in the U.S. dollar value of our cash and cash equivalents due to foreign currency exchange rate fluctuations.

For the three month period ended March 31, 2014:

Our cash and cash equivalents provided from operations totaled $55.1 million.

Our cash and cash equivalents used for investing activities totaled $99.8 million, resulting from the following:

· we paid $111.2 million in net purchases of investment securities,

· we paid $3.9 million in settlements of investment-related derivative instruments,

· we paid $39.6 million pursuant to reverse repurchase agreements,

· we had a $59.3 million decrease in our restricted cash,

· we paid $4.1 million in investment performance fees, and

· we paid $0.3 million to acquire capitalized assets.

Our cash and cash equivalents provided from financing activities totaled $321.7 million, resulting from the following:

· we paid $66.2 million to repurchase Common Shares,

· we received $397.4 million pursuant to repurchase agreements, and

· we paid $9.5 million in dividends to holders of Common Shares and Preferred Shares.

We also experienced a $2.0 million increase in the U.S. dollar value of our cash and cash equivalents due to foreign currency exchange rate fluctuations.

Credit Quality of Our Fixed Maturity Portfolio

The following table outlines the current Standard & Poor’s credit quality rating of our fixed maturities at March 31, 2015:

(Millions) Rating / Type	Fair Value at March 31, 2015

AAA	$	424.2
U.S. Government and agencies (AA+)	294.2
AA	385.1
A	298.6
BBB	196.5
Below BBB	304.6
Not rated	35.4

Total fixed maturities	$	1,938.6

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Summary of Critical Accounting Policies and Estimates

Our Consolidated Financial Statements have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported and disclosed amounts of our assets and liabilities as of the balance sheet dates and the reported amounts of our revenues and expenses during the reporting periods. We believe the items that require the most subjective and complex estimates are: (i) our loss and LAE reserves; (ii) our written and earned insurance and reinsurance premiums; (iii) our ceded reinsurance; and (iv) our share-based compensation. Our accounting policies for these items are of critical importance to our consolidated financial statements.

Loss and LAE Reserves

We did not make any significant changes in the assumptions or methodology we use in our reserving process during the three month period ended March 31, 2015. As of March 31, 2015 and December 31, 2014, our best estimate for gross unpaid loss and LAE reserves was $751.4 million and $775.7 million, respectively, and our best estimates for net unpaid loss and LAE reserves was $702.6 million and $727.0 million, respectively. As of March 31, 2015 and December 31, 2014, IBNR represented 62% of our net unpaid loss and LAE reserves.

Our reserving methodology does not lend itself well to a statistical calculation of a range of estimates surrounding the best point estimate of our loss and loss adjustment expense reserves. Due to the low frequency and high severity nature of much of our business, our reserving methodology principally involves arriving at a specific point estimate for the ultimate expected loss on a contract by contract basis, and our aggregate loss reserves are the sum of the individual loss reserves established. As of March 31, 2015, we estimate that a 15% change in our net unpaid loss and LAE reserves would result in an increase or decrease of our net income or loss and shareholders’ equity by approximately $105.4 million. The net income or loss and shareholders’ equity impact of the change in net reserves may be partially offset by adjustments to items such as reinstatement premiums, profit commissions, incentive compensation and income taxes.

Further information regarding our loss and LAE reserve estimates is included in the section entitled “Summary of Critical Accounting Estimates” in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the 2014 Form 10-K, as filed with the SEC.

Written and Earned Insurance and Reinsurance Premiums

We did not make any significant changes in the manner in which we recognize our written and earned insurance and reinsurance premiums during the three month period ended March 31, 2015.

Detailed information regarding our written and earned insurance and reinsurance premiums is included in the section entitled “Summary of Critical Accounting Estimates” in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the 2014 Form 10-K, as filed with the SEC.

Ceded Reinsurance

We did not make any significant changes in the manner in which we recognize our ceded reinsurance premiums during the three month period ended March 31, 2015.

Detailed information regarding our ceded reinsurance estimates is included in the section entitled “Summary of Critical Accounting Estimates” in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the 2014 Form 10-K, as filed with the SEC.

Share-Based Compensation

On the basis of the Company’s forecasted results for 2015, the Company anticipated issuing 414,460 Variable RSUs for the 2015-2018 award cycle as of March 31, 2015, or 100% of the Target Variable RSUs available for that cycle. The actual number of Variable RSUs to be awarded for the 2015 - 2018 award cycle, if any, will not be finalized until approved by the Compensation Committee. See Note 12 of the Notes to Consolidated Financial Statements.

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If our results for the balance of 2015 were to develop unfavorably, resulting in a zero (0% of Target) payout for incentive compensation purposes, our share-based compensation accruals at March 31, 2015 would be $1.9 million redundant and the RSU expense that we would expect to incur in future periods would decrease from $27.3 million to $14.9 million. Additionally, the Company’s total RSUs outstanding would decrease by 414,460 RSUs.

If our results for the balance of 2015 were to develop favorably, resulting in the maximum possible (200% of Target) payout for incentive compensation purposes, our share-based compensation accruals at March 31, 2015 would be $1.9 million deficient and the RSU expense that we would expect to incur in future periods would increase from $27.3 million to $39.7 million. Additionally, the Company’s total RSUs outstanding would increase by 414,460 RSUs.

Further information regarding our share-based compensation estimates is included in the section entitled “Summary of Critical Accounting Estimates” in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the 2014 Form 10-K, as filed with the SEC.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Refer to the 2014 Form 10-K, as filed with the SEC, and in particular Item 7A - “Quantitative and Qualitative Disclosures About Market Risk.” As of March 31, 2015, there were no material changes to our market risks as described in the 2014 Form 10-K.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The Company’s management has conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2015. Based on that evaluation, the Company’s Principal Executive Officer and Principal Financial Officer have concluded that the Company’s disclosure controls and procedures (as defined in §§240.13a-15(e) and §§240.15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) are effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Controls

During the three month period ended March 31, 2015, there were no changes in the Company’s internal controls that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

We are subject to litigation and arbitration proceedings in the normal course of our business. Such proceedings often involve insurance or reinsurance contract disputes, which are typical for the insurance and reinsurance industry. Expected or actual reductions in our reinsurance recoveries due to insurance or reinsurance contract disputes (as opposed to a reinsurer’s inability to pay) are not recorded as an uncollectible reinsurance recoverable. Rather, they are factored into the determination of, and are reflected in, our net loss and LAE reserves.

Other than the Tribune litigation (which is disclosed in Note 4 of the Notes to Consolidated Financial Statements) and any disputes involving insurance or reinsurance contracts in the normal course of business, we had no other unresolved legal proceedings at March 31, 2015.

Item 1A. Risk Factors.

Factors that could cause our actual results to differ materially from those in this report are: (i) any of the risks described in Item 1A “Risk Factors” included in the 2014 Form 10-K, as filed with the Securities and Exchange Commission; and (ii) those presented below, which serve to either amend or supplement those risks described in the 2014 Form 10-K.

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Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition.

Additional risks not presently known to us or that we currently deem immaterial may also impair our business or results of operations.

Risks Related to the Merger

Failure to complete the Merger could negatively impact the price of our Common Shares, as well as our future business, financial results and ratings, and could adversely impact our ability to realize the anticipated benefits of the Merger.

The Merger Agreement contains a number of conditions that must be satisfied or waived prior to the completion of the Merger. We cannot assure you that all of the conditions to the Merger will be so satisfied or waived. If the conditions to the Merger are not satisfied or waived, we may be unable to complete the Merger.

If the Merger is not completed, our ongoing business may be adversely affected as follows:

· we may experience negative reactions from the financial markets, including negative impacts on the market price of our Common Shares;

· the attention of management will have been directed to the Merger instead of being directed to our own operations and the pursuit of other opportunities that could have been beneficial to us;

· the manner in which brokers, insurers, cedants and other third parties perceive us may be negatively impacted, which in turn could affect our ability to compete for or write new business or obtain renewals in the marketplace;

· we may experience negative reactions from employees;

· we will have expended time and resources that could otherwise have been spent on our existing business;

· we may be required, in certain circumstances, to pay a termination fee of $73.2 million and/or reimburse Endurance for its incurred out-of-pocket expenses (not to exceed $9.2 million), as provided in the Merger Agreement; and

· our ratings may be adversely affected, which could have an adverse effect on our business, financial condition and operating results.

Additionally, in approving the Merger Agreement, the Board considered a number of factors and potential benefits, including the fact that the Merger consideration to be received by holders of our Common Shares (including the special dividend), based on Endurance’s closing price on March 30, 2015, represented a 19% premium to the unaffected closing price per Common Share on December 10, 2014. If the Merger is not completed, neither the Company nor its holders of Common Shares will realize these and other anticipated benefits of the Merger. Moreover, we would also have nevertheless incurred substantial transaction-related fees and costs and the loss of management time and resources.

The Merger is conditioned on, among other things, the approval by holders of our Common Shares and holders of Endurance’s common shares. We have not yet scheduled a special meeting of our shareholders, and Endurance has not yet scheduled a special meeting of its shareholders, to consider and vote upon the Merger and related matters.

A significant delay in consummating or a failure to consummate the Merger could have a material adverse effect on the price of our Common Shares and our operating results.

Because the Merger is subject to certain closing conditions, it is possible that the Merger may not be completed or may not be completed as quickly as expected. If the Merger is not completed, it could have a material adverse effect on the price of our Common Shares. In addition, any significant delay in consummating the Merger could have a material adverse effect on our operating results and adversely affect our relationships with customers and would likely lead to a significant diversion of management and employee attention and potential employee attrition.

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Expenses related to the proposed Merger are significant and will adversely affect our operating results.

We have incurred and expect to continue to incur significant expenses in connection with the proposed Merger, including legal and investment banking fees. We expect these costs to have an adverse effect on our operating results. If the Merger is not consummated, we may under certain circumstances be required to pay to Endurance a termination fee of approximately $73.2 million and/or reimburse Endurance for its incurred out-of-pocket expenses (not to exceed $9.2 million). Our financial position and results of operations would be adversely affected if we were required to pay the termination fee to Endurance.

We are subject to business uncertainties and contractual restrictions while the Merger is pending, which could adversely affect our business.

The Merger Agreement requires us to act in the ordinary course of business and restricts us, without the consent of Endurance, from taking certain specified actions until the proposed Merger occurs or the Merger Agreement terminates. These restrictions may prevent us from pursuing otherwise attractive business opportunities and making other changes to our business before completion of the Merger or, if the Merger is not completed, termination of the Merger Agreement.

Uncertainties associated with the Merger may cause a loss of management and other key employees and disrupt our business relationships, which could adversely affect our business.

Uncertainty about the effect of the Merger on our employees and our customers may have an adverse effect on our business. These uncertainties may impair our ability to attract, retain and motivate key personnel until the Merger is completed and for a period of time thereafter. Employee retention may be particularly challenging during the pendency of the Merger, as employees of the Company may experience uncertainty about their future roles with the combined company. If key employees depart and as we face additional uncertainties relating to the Merger, our business relationships may be subject to disruption as brokers, insurers, cedants and other third parties attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than the Company, Endurance or the combined company. If key employees depart or if our existing business relationships suffer, our results of operations may be adversely affected. The adverse effects of such disruptions could be further exacerbated by any delay in the completion of the Merger.

The Merger Agreement limits our ability to pursue alternatives to the Merger and may discourage other companies from trying to acquire us for greater consideration than what Endurance has agreed to pay.

The Merger Agreement contains provisions that make it more difficult for us to sell our business to a company other than Endurance. These provisions include a general prohibition on us soliciting any acquisition proposal or offer for a competing transaction, subject to limited exceptions. If we or Endurance terminate the Merger Agreement and we are subsequently acquired by another company, we may in some circumstances be required to reimburse Endurance for its incurred out-of-pocket expenses (not to exceed $9.2 million) and/or a pay to Endurance a termination fee of $73.2 million. Further, our Board of Directors has agreed in the Merger Agreement, subject to limited exceptions, that it will not withdraw or modify in a manner adverse to Endurance its recommendation that our shareholders approve the Merger.

These provisions might discourage a third party that has an interest in acquiring all or a significant part of the Company from considering or proposing an acquisition, even if the party were prepared to pay consideration with a higher per share cash or market value than the market value proposed to be received or realized in the Merger, or might result in a potential competing acquirer proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee or the payment of expenses that may become payable in certain circumstances.

The market price of Endurance’s common shares will continue to fluctuate after completion of the Merger and may be affected by factors different from those affecting our share price.

Upon completion of the Merger, holders of our Common Shares will become holders of Endurance common shares. The market price of Endurance common shares may fluctuate significantly following consummation of the Merger and holders of our Common Shares could lose the value of their investment in Endurance common shares. In addition, the stock market has experienced significant price and volume fluctuations in recent times, which could have a material

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adverse effect on the market for, or liquidity of, Endurance common shares, regardless of Endurance’s actual operating performance. In addition, Endurance’s business differs in important respects from that of the Company, and accordingly, the results of operations of the combined company and the market price of Endurance common shares after the completion of the Merger may be affected by factors different from those currently affecting the independent results of operations of each of Endurance and the Company.

Combining the two companies may be more difficult, costly, or time consuming than expected and the anticipated benefits and cost savings of the Merger may not be realized.

The Company and Endurance have operated and, until the completion of the Merger, will continue to operate, independently. The success of the Merger, including anticipated benefits and cost savings, will depend, in part, on Endurance’s ability to successfully combine and integrate the businesses of Endurance and the Company. It is possible the pending nature of the merger and/or the integration process could result in the loss of key employees, higher than expected costs, diversion of management attention of both the Company and Endurance, increased competition, the disruption of either company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the combined company’s ability to maintain relationships with customers, vendors, and employees or to achieve the anticipated benefits and cost savings of the Merger. If Endurance experiences difficulties with the integration process, the anticipated benefits of the Merger may not be realized fully or at all, or may take longer to realize than expected. Integration efforts between the two companies will also divert management’s attention and resources. These integration matters could have an adverse effect on each of Endurance and the Company during this transition period and for an undetermined period after completion of the Merger on the combined company, which could adversely affect the results of operations of the combined company and the market price of Endurance common shares after the completion of the Merger.

Because the equity portion of the merger consideration is determined by an exchange ratio that will not be adjusted to reflect fluctuations in the market price of Endurance common shares, holders of Common Shares cannot be sure of the value of the equity portion of the merger consideration they will receive in the Merger.

At the effective time of the Merger, each of our Common Shares issued and outstanding immediately prior to the effective time of the Merger will be converted into the right to receive 0.472 duly authorized, validly issued, fully paid and nonassessable common shares of Endurance, subject to customary cash adjustments for fractional shares. The number of common shares of Endurance to be issued pursuant to the Merger Agreement for each of our Common Shares will not change to reflect changes in the market price of Endurance common shares or our Common Shares. The market price of Endurance common shares at the time of completion of the Merger may vary significantly from the market prices of Endurance common shares on the date the Merger Agreement was executed or at other later dates, including the date on which the holders of our Common Shares vote to approve the Merger. Because we will not adjust the exchange ratio to reflect any changes in the market value of Endurance common shares or our Common Shares, the market value of the Endurance common shares issued in connection with the merger and our Common Shares surrendered in connection with the merger may be higher or lower than the values of such shares on earlier dates. Share price changes may result from market reaction to the announcement of the Merger and market assessment of the likelihood that the merger will be completed, changes in the business, operations or prospects of Endurance or the Company prior to or following the Merger, regulatory considerations, general business, market, industry or economic conditions and other factors both within and beyond the control of Endurance and the Company.

Holders of our Common Shares will have reduced ownership and voting interests after the Merger and will exercise less influence over the management and policies of Endurance than they currently exercise over our management and policies.

After the completion of the Merger, current holders of our Common Shares will own in the aggregate a significantly smaller percentage of Endurance than they currently own of the Company. Following completion of the transaction, current holders of our Common Shares will own approximately 32% of Endurance’s outstanding common shares. In addition, three of our current directors will join Endurance’s board of directors. Consequently, current holders of our Common Shares, as a group, will have less influence over the management and policies of Endurance than they currently exercise over our management and policies.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(a) None.

(b) None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

(a) On May 1, 2015, BCRH entered into the Amended BCRH Credit Agreement which permits BCRH to borrow up to $20.0 million on a revolving basis for working capital and general corporate purposes. The Amended BCRH Credit Agreement contains certain financial covenants as well as covenants that limit BCRH’s and, to a lesser extent, the Company’s ability, among other things, to grant liens on its assets, sell assets, merge or consolidate, incur debt and enter into certain transactions with affiliates.

If BCRH or the Company fail to comply with any of these covenants, the issuer of the Amended BCRH Credit Agreement could revoke the facility and exercise remedies against BCRH or the Company.

Montpelier currently owns 33.3% of BCRH’s outstanding common shares and, pursuant to an existing guarantee agreement, serves as a guarantor of BCRH’s obligations for this facility and is entitled to receive an annual guarantee fee from BCRH equal to 0.125% of the facility’s total capacity. See Note 14 of the Notes to Consolidated Financial Statements.

The foregoing description of the Amended BCRH Credit Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the operative supporting documents, which is filed as Exhibit 10.7 to this Quarterly Report on Form 10-Q, respectively.

(b) None.

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Item 6. Exhibits.

The exhibits followed by an asterisk (*) indicate exhibits physically filed with this Quarterly Report on Form 10-Q. All other exhibit numbers indicate exhibits filed by incorporation by reference or otherwise.

Exhibit
Number		Description of Document

2		Agreement and Plan of Merger, dated March 31, 2015, by and among the Company, Endurance and Millhill Holdings Ltd. (incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on April 1, 2015).

10.1		Amendment No. 1 to The Company’s 2012 Long-Term Incentive Plan. (*)

10.2		Amendment No. 2 to The Company’s 2007 Long-Term Incentive Plan. (*)

10.3		The Company’s 2015 Annual Bonus Plan. (*)

10.4		Form of 2015 Annual Restricted Share Unit Award Agreement under the 2012 Long-Term Incentive Plan. (*)

10.5		Form of 2015 Restricted Share Unit Award Agreement under the 2012 Long-Term Incentive Plan. (*)

10.6		The Company’s Amended and Restated Severance Plan (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 1, 2015).

10.7		First Amendment to the BCRH Credit Agreement among BCRH, the Company and Royal Bank of Canada. (*)

11		Statement Re: Computation of Per Share Earnings (included as Note 9 of the Notes to Consolidated Financial Statements).

31.1		Certification of Christopher L. Harris, Chief Executive Officer of Montpelier Re Holdings Ltd., pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended. (*)

31.2		Certification of Michael S. Paquette, Chief Financial Officer of Montpelier Re Holdings Ltd., pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended. (*)

32		Certifications of Christopher L. Harris and Michael S. Paquette, Chief Executive Officer and Chief Financial Officer, respectively, of Montpelier Re Holdings Ltd., pursuant to 18 U.S.C. Section 1350. (*)

101		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations and Comprehensive Income; (iii) the Consolidated Statements of Shareholders’ Equity; (iv) the Consolidated Statements of Cash Flows; and (v) the Notes to Condensed Consolidated Financial Statements. (*)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	MONTPELIER RE HOLDINGS LTD. (Registrant)

	By:	/s/ MICHAEL S. PAQUETTE
		Name:	Michael S. Paquette
		Title:	Executive Vice President and Chief Financial Officer (Principal Financial Officer)
May 4, 2015

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