Montpelier Re Holdings Ltd. shares plummeted 20 percent in afternoon trading yesterday after the Bermuda-based reinsurer reported a steep drop in third-quarter profit due to losses from hurricanes that hit the Gulf Coast.

Shares of the company closed $2.93, or 13.6 percent lower, at $18.55 on the New York Stock Exchange, after earlier changing hands at a 52-week low of $16.33. The company ? which reported its quarterly loss late Wednesday ? is down about 56 percent so far this year.

Montpelier reported a net loss of $875.1 million, or $12.16 per share, on revenue of $972 million. The results were significantly below Wall Street projections, and the larger-than-expected hurricane losses came as a surprise to analysts.

?The frequency and severity of catastrophes was a surprise to all, but we did not expect Montpelier Re could lose more than 50 percent of its book value from a $50 billion event,? Deutsche Bank analyst Darin Arita said in a research note. ?Hurricane Katrina is the largest insured loss event for the industry, but there exists the potential for even greater loss events.?

The reinsurer disclosed that Katrina alone triggered $809 million of losses, significantly higher than its original estimate for between $450 million to $675 million.

Montpelier chief executive Anthony Taylor said the company remains ?very disappointed? by the outcome, but said the event will change the way certain classes of its business will be structured and priced.

?For Montpelier, with a short tail property concentration and a declared policy of purchasing limited amounts of reinsurance protection, the losses incurred have inevitably been significant. We are nonetheless very disappointed by this outcome.

?We are taking appropriate steps to reduce the potential impact of very large events by managing both our gross and net exposures so as to respond to the post-Katrina environment,? Mr. Taylor said.

He added that the fallout from Hurricane Katrina, coupled with the other events in the quarter and the latter half of 2004, will result in changes in the way certain classes of business will be structured and priced.

?We expect both the demand for our products and their pricing to increase significantly. This should lead to new opportunities as we move into the 2006 renewal season,? he said in the earnings statement.

While shocked by the earnings miss, analysts did say the company is still considered a good value ? and that the losses should teach management how to better shield the business in the future. Expected price increases that will go into effect next year should also help the company?s bottom line.

But, in the meantime, Montpelier might have to raise more capital to stave off a downgrade from major credit rating agencies. The company said in September it raised $600 million in capital by selling new shares of the company to help cushion the financial burden left by the hurricanes wake.

?Montpelier is on negative credit watch by three of the main rating agencies,? said Wachovia Securities analyst Susan Spivak Bernstein in a research report. ?The increased size of the loss puts the company in danger for further downgrades which could impact results since most ?sudden-death? clauses in contracts provide clients the ability to cancel a contract if the reinsurer is moved from an A rating to the B range.?

A downgrade of its debt would trigger a number of problems for the company ? the least of which being that borrowing costs will increase. Lowering Montpelier?s debt could trip a default on some of its credit agreements and could trigger the loss of existing customers whose contracts hinge on strong credit ratings.

Cliff Gallant, an analyst with Keefe, Bruyette & Woods, said he believes the company still has strong value and the stock sell off represents a buying opportunity. He upgraded shares to a ?Market Perform? because the stock?s value has become more attractive.