Bermuda-based Montpelier Re Holdings Ltd.'s has reported a $5.5 million drop in net income ? to $107 million in the second quarter ? as expenses outstripped the company's revenues.

The company said it had recorded a "strong underwriting result", although like other reinsurers, it was beginning to experience a softening market.

Montpelier said net income for the second quarter was $107 million, down $5.5 million from the same quarter in 2003's earnings of $112.5 million.

Per share, the company had earnings of $1.57 for the second quarter.

For the first six months, net income totalled $216 million, or $3.16 per share, compared to $216.3 million or $3.24 per share for the first half of 2003.

President and chief executive officer Anthony Taylor said: "Montpelier produced another strong underwriting result in the second quarter of 2004. We are particularly pleased to have recorded a combined ratio of 51 percent and to have grown our core book of business over the comparable period last year while maintaining very stringent underwriting criteria.

"We believe in underwriting for the bottom line result, not top line revenues, and we remain convinced that this highly disciplined approach is the best way to achieve favourable results for our owners over the long term."

Mr. Taylor also noted the widely felt effects of a softening market. He said: "Rates in certain classes have continued to move slowly downwards, which has resulted in our declining a significant number of risks."

Montpelier Re's net unrealised losses on investments were $47.3 million for the quarter and $21.4 million for the year to date. Comprehensive income for the quarter was $59.7 million, or 88 cents diluted comprehensive income per share, and $194.6 million, or $2.84 diluted comprehensive income per share for the first six months.

Mr. Taylor added: "In the important July renewal season, we achieved an excellent showing from both existing and new clients, and we are pleased with the quality of the portfolio we have written. However, the combination of our experienced team of underwriters and our cutting edge pricing and capital allocation technologies gives us the ability to continue to perform strongly in the changing environment."

Tom Kemp, chief financial officer, said: "We have produced yet another outstanding underwriting performance in the quarter.

"Against a background of challenging investment conditions for fixed income portfolios, we believe we have generated a solid result for our shareholders. Including realised and unrealised gains and losses, our investments produced a total loss of $29.5 million in the three months to June 30; however, our short duration, high quality, fixed income portfolio performed well in the face of rising interest rates."