Investment losses wiped out a profitable underwriting performance for Montpelier Re Holdings Ltd., which reported a net loss of $47.7 million for the fourth quarter.

Operating income totalled $57 million for the three months ended December 31, or 68 cents per share, and $94 million, or $1.09 per share, for the year.

However, realised and unrealised investment losses totalled $111.9 million in the quarter and $243.1 million for the year.

Under the accounting system FAS 159, adopted by Montpelier in January 2007, the company reports virtually all of its net unrealised investment gains and losses, whether temporary or permanent, as a part of net income.

Fully converted book value per share was $15.94 at December 31, 2008, a decrease of 3.6 percent for the quarter and 9.2 percent for the year, inclusive of dividends.

Net investment income was $18.9 million, compared to $33.1 million in the fourth quarter of 2007.

Montpelier president and chief executive officer Chris Harris said: "Our fourth-quarter investment results were a disappointment, particularly within the alternative portfolio. The majority of the $50 million of realised losses recorded during the quarter came from write-offs of our leveraged distressed debt fund investments.

"At year end, 82 percent of our portfolio was invested in cash and investment grade fixed income instruments with an average rating of AA+, and we are comfortable with our asset allocation heading into 2009."

Combined ratio — the percentage of premium dollars spent on claims and expenses — was 63.4 percent for the quarter and 91 percent for the year.

The Bermuda reinsurer said the net financial impact of hurricanes Gustav and Ike did not change during the quarter and stands at approximately $140 million.

Gross premiums written declined 4.8 percent compared to the same period in 2007, at $72.6 million compared to $76.3 million, and were down 5.1 percent for the full year.

"We produced solid underwriting results during the fourth quarter," Mr. Harris added. "The quarter benefited from prior year reserve releases, and our Ike net loss remained within our expected range for a storm of that size.

"On the underwriting front, the January renewal season was encouraging in the US although less so elsewhere. We found pricing relatively attractive for most lines, but we expect rates to firm through the year."