10-Q

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 June 30, 2013

OR

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  No o

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 August 1, 2013, the registrant had 50,734,655 common shares outstanding, with a par value of 1/6 cent per share (“Common Shares”).

MONTPELIER RE HOLDINGS LTD.

INDEX TO FORM 10-Q

		Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012 (Unaudited)	3
	Consolidated Statements of Operations and Comprehensive Income for the Three and Six Month Periods Ended June 30, 2013 and 2012 (Unaudited)	4
	Consolidated Statements of Shareholders’ Equity for the Six Month Periods Ended June 30, 2013 and 2012 (Unaudited)	5
	Consolidated Statements of Cash Flows for the Six Month Periods Ended June 30, 2013 and 2012 (Unaudited)	6
	Notes to Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	77
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	109
Item 4.	Controls and Procedures	110
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	110
Item 1A.	Risk Factors	110
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	110
Item 3.	Defaults Upon Senior Securities	111
Item 4.	Mine Safety Disclosures	111
Item 5.	Other Information	111
Item 6.	Exhibits	111
SIGNATURES		112

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

MONTPELIER RE HOLDINGS LTD.

CONSOLIDATED BALANCE SHEETS

Unaudited

	June 30,			December 31,
(In millions of U.S. dollars, except share amounts)	2013			2012
Assets
Fixed maturity investments, at fair value (amortized cost: $2,519.4 and $2,662.2)	$	2,506.2		$	2,738.6
Equity securities, at fair value (cost: $114.7 and $38.1)	116.1			40.9
Other investments (cost: $72.5 and $143.1)	80.1			138.5
Total investments	2,702.4			2,918.0
Cash and cash equivalents	438.7			330.8
Restricted cash	115.6			70.6
Reinsurance recoverable on unpaid losses	80.3			102.7
Reinsurance recoverable on paid losses	26.8			6.7
Insurance and reinsurance premiums receivable	341.3			222.9
Unearned reinsurance premiums ceded	48.9			22.2
Deferred insurance and reinsurance acquisition costs	60.2			48.4
Accrued investment income	14.7			15.2
Unsettled sales of investments	79.9			48.9
Other assets	26.9			23.7
Total Assets	$	3,935.7		$	3,810.1
Liabilities
Loss and loss adjustment expense reserves	$	1,003.7		$	1,112.4
Debt	399.1			399.1
Unearned insurance and reinsurance premiums	413.9			270.1
Insurance and reinsurance balances payable	89.9			54.0
Liability for investment securities sold short	110.9			138.8
Unsettled purchases of investments	206.9			148.7
Accounts payable, accrued expenses and other liabilities	42.0			57.6
Total Liabilities	2,266.4			2,180.7
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 52,183,346 and 56,711,141 shares	0.1			0.1
Additional paid-in capital	942.2			1,056.0
Common Shares held in treasury, at cost: 1,163,239 and 1,441,451 shares	(18.2		)	(23.1		)
Retained earnings	502.4			449.7
Accumulated other comprehensive loss	(6.5		)	(3.3		)
Total Shareholders’ Equity available to the Company	1,570.0			1,629.4
Non-controlling interest	99.3			—
Total Shareholders’ Equity	1,669.3			1,629.4
Total Liabilities and Shareholders’ Equity	$	3,935.7		$	3,810.1

See Notes to Consolidated Financial Statements

3

MONTPELIER RE HOLDINGS LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

Unaudited

	Three Month Periods Ended						Six Month Periods Ended
	June 30,						June 30,
(In millions of U.S. dollars, except per share amounts)	2013			2012			2013			2012
Revenues
Gross insurance and reinsurance premiums written	$	242.7		$	253.5		$	503.9		$	513.2
Ceded reinsurance premiums	(44.9		)	(42.7		)	(80.1		)	(82.4		)
Net insurance and reinsurance premiums written	197.8			210.8			423.8			430.8
Change in net unearned insurance and reinsurance premiums	(58.9		)	(64.4		)	(125.2		)	(123.9		)
Net insurance and reinsurance premiums earned	138.9			146.4			298.6			306.9
Net investment income	16.7			17.2			33.1			34.8
Net realized and unrealized investment gains (losses)	(61.2		)	13.3			(61.9		)	45.7
Net foreign currency gains (losses)	(5.3		)	2.9			15.8			0.3
Net income (loss) from derivative instruments	(12.2		)	2.1			(7.6		)	3.6
Other revenue	—			0.2			—			0.7
Total revenues	76.9			182.1			278.0			392.0
Expenses
Underwriting expenses:
Loss and loss adjustment expenses	46.8			57.2			97.4			101.2
Insurance and reinsurance acquisition costs	22.6			23.6			44.7			48.4
General and administrative expenses	26.4			31.0			53.3			56.7
Non-underwriting expenses:
Interest and other financing expenses	4.7			4.8			9.4			9.8
Total expenses	100.5			116.6			204.8			216.1
Income (loss) before income taxes	(23.6		)	65.5			73.2			175.9
Income tax benefit	0.4			—			0.2			—
Net income (loss)	(23.2		)	65.5			73.4			175.9
Net income attributable to non-controlling interest	(0.7		)	—			(1.9		)	—
Net income (loss) available to the Company	(23.9		)	65.5			71.5			175.9
Dividends declared on Preferred Shares	(3.4		)	(3.4		)	(6.7		)	(6.7		)
Net income (loss) available to the Company’s common shareholders	$	(27.3	)	$	62.1		$	64.8		$	169.2
Net income (loss)	$	(23.2	)	$	65.5		$	73.4		175.9
Net change in foreign currency translation	0.3			(1.6		)	(3.2		)	(1.2		)
Comprehensive income (loss)	(22.9		)	63.9			70.2			174.7
Net income attributable to non-controlling interest	(0.7		)	—			(1.9		)	—
Comprehensive income (loss) available to the Company	$	(23.6	)	$	63.9		$	68.3		$	174.7
Per share data:
Basic and diluted earnings (loss) per Common Share	$	(0.52	)	$	1.06		$	1.19		$	2.82
Dividends declared per Common Share	0.115			0.105			0.23			0.21

See Notes to Consolidated Financial Statements

4

MONTPELIER RE HOLDINGS LTD.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Six Month Periods Ended June 30, 2013 and 2012

Unaudited

																	Accum.
	Total					Common		Additional			Common						other			Non-
	shareholders’			Preferred		Shares, at		paid-in			Shares held			Retained			comprehensive			controlling
(In millions of U.S. dollars)	equity			Shares		par value		capital			in treasury			earnings			loss			interest
Opening balances at January 1, 2013	$	1,629.4		$	150.0	$	0.1	$	1,056.0		$	(23.1	)	$	449.7		$	(3.3	)	$	—
Net income	73.4			—		—		—			—			71.5			—			1.9
Net change in foreign currency translation	(3.2		)	—		—		—			—			—			(3.2		)	—
Repurchases of Common Shares	(113.6		)	—		—		(113.6		)	—			—			—			—
Issuances of Common Shares from treasury	—			—		—		(4.9		)	4.9			—			—			—
Expense recognized for RSUs	6.8			—		—		6.8			—			—			—			—
RSUs withheld for income taxes	(2.1		)	—		—		(2.1		)	—			—			—			—
Third party investment in Blue Capital	97.4			—		—		—			—			—			—			97.4
Dividends declared on Common Shares	(12.1		)	—		—		—			—			(12.1		)	—			—
Dividends declared on Preferred Shares	(6.7		)	—		—		—			—			(6.7		)	—			—
Ending balances at June 30, 2013	$	1,669.3		$	150.0	$	0.1	$	942.2		$	(18.2	)	$	502.4		$	(6.5	)	$	99.3

																	Accum.
	Total					Common		Additional			Common						other			Non-
	shareholders’			Preferred		Shares at		paid-in			Shares held			Retained			comprehensive			controlling
(In millions of U.S. dollars)	equity			Shares		par value		capital			in treasury			earnings			loss			interest
Opening balances at January 1, 2012	$	1,549.3		$	150.0	$	0.1	$	1,165.6		$	(22.0	)	$	259.7		$	(4.1	)	$	—
Net income	175.9			—		—		—			—			175.9			—			—
Net change in foreign currency translation	(1.2		)					—			—			—			(1.2		)	—
Repurchases of Common Shares	(85.6		)	—		—		(76.6		)	(9.0		)	—			—			—
Issuances of Common Shares from treasury	—			—		—		(0.8		)	0.8			—			—			—
Expense recognized for RSUs	5.3			—		—		5.3			—			—			—			—
RSUs withheld for income taxes	(0.2		)					(0.2		)	—			—			—			—
Dividends declared on Common Shares	(12.1		)	—		—		—			—			(12.1		)	—			—
Dividends declared on Preferred Shares	(6.7		)	—		—		—			—			(6.7		)	—			—
Ending balances at June 30, 2012	$	1,624.7		$	150.0	$	0.1	$	1,093.3		$	(30.2	)	$	416.8		$	(5.3	)	$	—

See Notes to Consolidated Financial Statements

5

MONTPELIER RE HOLDINGS LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

	Six Month Periods Ended
	June 30,
(In millions of U.S. dollars)	2013			2012
Cash flows from operations:
Net income	$	73.4		$	175.9
Charges (credits) to reconcile net income to net cash from operations:
Net realized and unrealized investment losses (gains)	61.9			(45.7		)
Net amortization and depreciation of assets and liabilities	5.3			6.8
Expense recognized for RSUs	6.8			5.3
Net change in:
Loss and loss adjustment expense reserves	(84.9		)	(46.0		)
Reinsurance recoverable on paid and unpaid losses	(14.1		)	2.5
Unearned insurance and reinsurance premiums	152.5			153.0
Insurance and reinsurance balances payable	38.8			34.0
Unearned reinsurance premiums ceded	(27.3		)	(29.1		)
Deferred insurance and reinsurance acquisition costs	(13.9		)	(6.8		)
Insurance and reinsurance premiums receivable	(125.7		)	(140.5		)
Other assets	(3.8		)	(2.2		)
Accounts payable, accrued expenses and other liabilities	1.2			5.8
Other	(11.8		)	1.6
Net cash and cash equivalents provided from operations	58.4			114.6
Cash flows from investing activities:
Purchases of fixed maturity investments	(2,911.7		)	(1,904.9		)
Purchases of equity securities	(154.5		)	(102.2		)
Purchases of other investments	—			(20.7		)
Sales, maturities, calls and pay downs of fixed maturity investments	3,060.8			2,018.9
Sales of equity securities	90.6			169.0
Sales and redemptions of other investments	67.1			16.1
Payment of closing expenses associated with the MUSIC Sale	—			(1.0		)
Settlements of investment-related derivative instruments	(7.8		)	(1.1		)
Net change in restricted cash	(45.9		)	39.6
Payment of accrued investment performance fees	(6.4		)	—
Acquisitions of capitalized assets	(0.6		)	(0.2		)
Net cash and cash equivalents provided from investing activities	91.6			213.5
Cash flows from financing activities:
Repurchases of Common Shares	(114.7		)	(83.9		)
Third party investment in Blue Capital	97.4			—
Dividends paid on Common Shares	(12.6		)	(12.6		)
Dividends paid on Preferred Shares	(6.6		)	(6.6		)
Net cash and cash equivalents used for financing activities	(36.5		)	(103.1		)
Effect of foreign currency exchange rate fluctuations on cash and cash equivalents	(5.6		)	(1.6		)
Net increase in cash and cash equivalents during the period	107.9			223.4
Cash and cash equivalents - beginning of year	330.8			340.3
Cash and cash equivalents - end of period	$	438.7		$	563.7

See Notes to Consolidated Financial Statements

6

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 in Bermuda, the United States (the “U.S.”), the United Kingdom (the “U.K.”) and Switzerland (collectively “Montpelier”), provides customized and innovative insurance and reinsurance solutions to the global 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 for complete consolidated financial statements. These interim financial statements should be read in conjunction with the audited financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 (the “2012 Form 10-K”), as filed with the Securities and Exchange Commission (the “SEC”). In the opinion of management, these interim financial statements include all normally recurring adjustments considered 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 financial statements may not be indicative of financial results for the full year.

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 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.

Reportable Segments

The Company currently operates through four reportable segments: Montpelier Bermuda, Montpelier Syndicate 5151, Blue Capital and MUSIC Run-Off.  Each of the Company’s segments represents a separate underwriting platform through which Montpelier writes, or formerly wrote, insurance and reinsurance business.  The Company’s segment disclosures provided herein present the operations of Montpelier Bermuda, Montpelier Syndicate 5151, Blue Capital and MUSIC Run-Off prior to the effects of intercompany quota share reinsurance agreements among them.

7

Detailed financial information about each of the Company’s reportable segments for the three and six month periods ended June 30, 2013 and 2012 is presented in Note 8.  The activities of the Company, certain of its intermediate holding and service companies and intercompany eliminations relating to inter-segment reinsurance and support services, 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 collective assets and operations of Montpelier Reinsurance Ltd. (“Montpelier Re”) and Montpelier Europa AG (“MEAG”).

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 attractive insurance and reinsurance opportunities by combining underwriting experience with proprietary risk pricing and capital allocation models and catastrophe modeling tools.

MEAG, the Company’s wholly-owned subsidiary based in Baar, Canton Zug, Switzerland, primarily focuses on marketing activities in Continental Europe and the Middle East on behalf of Montpelier Re. MEAG also 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 Montpelier Syndicate 5151.

Montpelier Syndicate 5151

The Montpelier Syndicate 5151 segment consists of the collective assets and operations of Syndicate 5151, the Company’s wholly-owned Lloyd’s of London (“Lloyd’s”) syndicate based in London, Montpelier Capital Limited (“MCL”),  Montpelier Underwriting Agencies Limited (“MUAL”), Montpelier Underwriting Services Limited (“MUSL”), Montpelier Underwriting Inc. (“MUI”), and, through September 30, 2012, Paladin Underwriting Agency Limited (“PUAL”).

Syndicate 5151 was established in July 2007 and underwrites property insurance and reinsurance, engineering, marine hull and liability, cargo and specie 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 sole corporate underwriting member of Lloyd’s.

MUAL, the Company’s wholly-owned Lloyd’s Managing Agent based in London, oversees Syndicate 5151’s

8

operations.

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

MUI, the Company’s wholly-owned subsidiary based in Hartford, Connecticut, serves as a Lloyd’s Coverholder and underwrites reinsurance business on behalf of Syndicate 5151 through managing general agents and intermediaries.

PUAL, formerly a wholly-owned subsidiary based in London, also serves as a Lloyd’s Coverholder and underwrites business on behalf of Syndicate 5151 and third parties. PUAL specializes in financial crime classes of business, but also underwrote specialist contractor business until 2011.  In September 2012 Montpelier sold PUAL to a founding member of its management. PUAL’s assets and operations were not material to the Company.

Blue Capital

The Blue Capital 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. (“BCL”) and Blue Capital Insurance Managers Ltd. (“BCIML”). Blue Capital was launched in 2012 as an asset management platform offering a range of catastrophe reinsurance-linked investment products to institutional and retail investors.

Blue Water Re is a Bermuda-based special purpose insurance vehicle that provides property catastrophe reinsurance coverage and related products on a fully-collateralized basis.  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.

BCL and BCIML provide investment and insurance management services to Blue Water Re, as well as various segregated accounts of the Master Fund, including Blue Capital Global Reinsurance SA-I (the “BCGR Cell”) and BCAP Mid Vol Fund (the “BCAP Cell”), collectively, the “Cells”.

Blue Capital Advisors Ltd. (“BCAL”) is a U.S.-based services company that provides accounting, finance, legal and advisory services to BCL.

9

The Cells have invested in: (i)  fully-collateralized reinsurance-linked 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) other insurance-linked securities offered by entities other than Blue Water Re.

As of June 30, 2013 and December 31, 2012, Montpelier Re’s investment in the BCAP Cell totaled $39.8 million and $23.4 million, respectively.

In October 2012 the Company established the Blue Capital Global Reinsurance Fund Limited (the “BCGR Listed Fund”), a closed-ended, publicly-listed, mutual fund incorporated in Bermuda that serves as the feeder fund for the BCGR Cell.  In December 2012 Montpelier and third parties invested $50.0 million and $50.1 million, respectively, in the BCGR Listed Fund. In May 2013 third parties invested an additional $52.3 million in the BCGR Listed Fund.

The BCGR Listed Fund is considered a “voting interest entity” under GAAP and, since Montpelier currently owns less than 50% of its outstanding ordinary shares, the Company does not consolidate the BCGR Listed Fund’s net assets or operations within its consolidated financial statements or within the Blue Capital segment.

During the first six months of 2013, $144.7 million of the BCGR Listed Fund’s assets were initially invested into the BCGR Cell.   The Company has determined that, because the preference shares issued by Blue Water Re and the Cells do not carry voting rights, Blue Water Re and the Cells are considered “variable interest entities” under GAAP.  Management has also determined that the Company, through BCIML’s insurance management agreement, has a controlling financial interest in these entities.  As a result, Blue Water Re and the Cells are fully-consolidated within the Company’s financial statements with the interests attributable to third party investors being reported as a non-controlling interest.

MUSIC Run-Off

On December 31, 2011, Montpelier completed the sale of Montpelier U.S. Insurance Company (“MUSIC”), the Company’s former U.S.-based excess and surplus lines insurance company, to Selective Insurance Group, Inc. (“Selective”). During the period in which the Company owned MUSIC, it was a domestic surplus lines insurer and was authorized as an excess and surplus lines insurer in all 50 U.S. states and the District of Columbia. MUSIC underwrote smaller commercial property and casualty risks that do not conform to standard insurance lines.

In connection with the sale of MUSIC (the “MUSIC Sale”), Montpelier has either retained, reinsured or otherwise indemnified Selective for all business written by MUSIC with an effective date on or prior to December 31, 2011.  As a result, the MUSIC Run-Off segment for the periods presented herein consists of the insurance business retained, reinsured or otherwise indemnified by Montpelier in accordance with the MUSIC Sale.

The protections provided to Selective pursuant to the MUSIC Sale were effected through the following arrangements, each of which became effective as of December 31, 2011:

(i)Montpelier Re amended and increased its existing quota share arrangement with MUSIC from 75% to 100%

10

(the “MUSIC Quota Share”) which has the effect of ceding the majority of MUSIC’s unearned premiums at December 31, 2011 to Montpelier Re;

(ii)Montpelier Re entered into a Loss Development Cover (the “Loss Development Cover”) with MUSIC which has the effect of ensuring that MUSIC’s net loss and LAE reserves relating to retained business written on or prior to December 31, 2011 (that business not otherwise covered by the MUSIC Quota Share) remains adequate.  Under the Loss Development Cover, any future adverse development associated with such retained reserves will be protected by Montpelier Re and any future favorable development associated with such retained reserves will benefit Montpelier Re; and

(iii)the Company provided Selective with an indemnification which has the effect of guaranteeing each of the contractual arrangements (those with MUSIC and/or Selective) of Montpelier Re U.S. Holdings Ltd.  (“MRUSHL”), as MUSIC’s seller, and Montpelier Re, as MUSIC’s primary reinsurer.

11

As of June 30, 2013 and December 31, 2012, Montpelier Re had remaining loss and LAE reserves of $37.5 million and $43.5 million, respectively, under the MUSIC Quota Share.  As of those dates, Montpelier Re had not incurred any losses under the Loss Development Cover.

Corporate and Other

The Company’s Corporate and Other activities consist of the assets and operations of the Company and certain of its intermediate holding and service companies, including Montpelier Technical Resources Ltd. (“MTR”).

MTR, the Company’s wholly-owned U.S. subsidiary with its main offices in Woburn, Massachusetts and Hanover, New Hampshire, provides accounting, finance, legal, risk management, information technology, internal audit, human resources and advisory services to many of the Company’s subsidiaries.

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 predetermined 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 June 30, 2013 and December 31, 2012, Montpelier’s provision for doubtful accounts was $3.9 million and $3.8 million, respectively.

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.

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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 generally 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.

Also included in acquisition costs are profit commissions earned and incurred. Accrued profit commissions payable are included in insurance and reinsurance balances payable and accrued profit commissions receivable are included in other assets on the Company’s consolidated balance sheets.

Foreign Currency Exchange

The U.S. dollar is the Company’s reporting currency.  The British pound is the functional currency for the Company’s U.K.- based operations and the Swiss franc is the functional currency for the operations of MEAG. The U.S. dollar is the functional currency for all other operations. The assets and liabilities of the Company’s U.K. and Swiss 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 exchange 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.

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

Currency	Opening Rate January 1, 2013	Closing Rate June 30, 2013	Opening Rate January 1, 2012	Closing Rate June 30, 2012
British Pound (GBP)	1.6234	1.5212	1.5617	1.5570
Swiss Franc (CHF)	1.0924	1.0583	1.0634	1.0546

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.

Investments and Cash

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 included in income and reported within net realized and unrealized investment gains (losses) on the Company’s consolidated statement of operations.

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Montpelier’s other investments are carried at either fair value or based on the equity method of accounting (which is based on underlying net asset values) and consist primarily of investments in limited partnership interests and private investment funds, the BCGR Listed Fund, private placements 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 the 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 reporting 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.

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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 and net income (loss) from derivative instruments are presented net of any associated performance fees.  Montpelier incurred (reversed) performance fees related to its investments and investment-related derivative instruments of $(0.6) million and $0.6 million during the three month periods ended June 30, 2013 and 2012, respectively, and $0.6 million and $2.8 million during the six month periods ended June 30, 2013 and 2012, respectively.

Cash and cash equivalents include cash and fixed income investments with maturities of less than three months, as measured from the date of purchase.  Restricted cash of $115.6 million at June 30, 2013 consisted of $103.3 million of collateral supporting investment securities sold short and derivative positions and $12.3 million of foreign deposit accounts held at Lloyd’s.  Restricted cash of $70.6 million at December 31, 2012 consisted of $57.1 million of collateral supporting investment securities sold short and derivative positions and $13.5 million of foreign deposit accounts held at Lloyd’s.

As of June 30, 2013 and December 31, 2012, $2.4 million and $47.4 million, respectively, of Montpelier’s cash equivalents represented repurchase agreements which were fully collateralized.

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.

Common Shares Held in Treasury

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 June 30, 2013 and December 31, 2012, the Company had inception-to-date gains from issuances of its treasury shares of $0.1 million and $0.6 million, respectively, which have been recorded as additional paid-in capital on the Company’s consolidated balance sheets. 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.  At June 30, 2013 and December 31, 2012, funds withheld balances of $3.1 million and $4.1 million, respectively, were recorded within other assets on the Company’s consolidated balance sheets.

Non-Controlling Interest

The following table summarizes the movements in the non-controlling interest balance during the three and six month periods ended June 30, 2013 and 2012:

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	Three Month Periods Ended June 30,				Six Month Periods Ended June 30,
	2013		2012		2013		2012
Non-controlling interest - beginning	$	32.6	$	—	$	—	$	—
Amounts invested into the BCGR Cell on behalf of third parties	66.0		—		97.4		—
Income attributable to non-controlling interest	0.7		—		1.9		—
Non-controlling interest - ending	$	99.3	$	—	$	99.3	$	—

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NOTE 2.  Loss and LAE Reserve Movements

The following table summarizes Montpelier’s loss and LAE reserve movements for the three and six month periods ended June 30, 2013 and 2012:

	Three Month Periods Ended June 30,						Six Month Periods Ended June 30,
	2013			2012			2013			2012
Gross unpaid loss and LAE reserves - beginning	$	1,035.3		$	1,035.7		$	1,112.4		$	1,077.1
Reinsurance recoverable on unpaid losses - beginning	(86.6		)	(71.1		)	(102.7		)	(77.7		)
Net unpaid loss and LAE reserves - beginning	948.7			964.6			1,009.7			999.4
Losses and LAE incurred:
Current year losses	94.5			73.9			163.5			146.6
Prior year losses	(47.7		)	(16.7		)	(66.1		)	(45.4		)
Total incurred losses and LAE	46.8			57.2			97.4			101.2
Net foreign currency translation movements on loss and LAE reserves	1.4			(8.8		)	(21.3		)	(1.2		)
Losses and LAE paid and approved for payment:
Current year losses	(10.0		)	(6.9		)	(14.6		)	(9.1		)
Prior year losses	(63.5		)	(55.0		)	(147.8		)	(139.2		)
Total losses and LAE paid and approved for payment	(73.5		)	(61.9		)	(162.4		)	(148.3		)
Net unpaid loss and LAE reserves - ending	923.4			951.1			923.4			951.1
Reinsurance recoverable on unpaid losses - ending	80.3			78.8			80.3			78.8
Gross unpaid loss and LAE reserves - ending	$	1,003.7		$	1,029.9		$	1,003.7		$	1,029.9

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.

Prior Year Loss and LAE Development — three and six month periods ended June 30, 2013

During the second quarter of 2013, Montpelier experienced $47.7 million in net favorable development on prior year loss and LAE reserves.  This net favorable development related to the following events and factors:

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·IBNR reductions associated with Montpelier Bermuda’s medical malpractice class of business ($7.1 million decrease),

·The commutation/settlement of several prior year contracts ($5.4  million decrease),

·2011 Japan earthquake ($4.7 million decrease),

·2012 Hurricane Sandy ($4.4 million decrease), and

·2012 Costa Concordia accident ($2.2 million decrease).

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In addition to the foregoing, claims reported to Montpelier during the second quarter of 2013 indicated that IBNR for natural catastrophe losses it initially recorded during 2012 (excluding Hurricane Sandy) exceeded the extent of losses that actually occurred, and consequently Montpelier decreased its loss and LAE reserves by a further $7.5  million during the second quarter of 2013.

The remaining net favorable development on prior year loss and LAE reserves recognized during the second quarter of 2013 related to several smaller adjustments made across multiple classes of business.

During the six month period ended June 30, 2013, Montpelier experienced $66.1 million in net favorable development on prior year loss and LAE reserves.  In addition to the items noted above, the favorable development recognized during the six month period ended June 30, 2013 also included the following events and factors recognized during the first quarter of 2013:

·A settlement associated with the 2010 Deepwater Horizon oil rig explosion and fire ($5.0 million decrease),

·2011 Japanese earthquake ($3.6 million decrease),

·2011 fire at a Texas fuel storage facility ($2.6 million increase),

·2007 fire at a Chilean power plant ($2.5 million increase),

·2005 Hurricanes ($1.9 million decrease), and

·2011 Georgia weather events ($1.6 million decrease).

In addition to the foregoing, claims reported to Montpelier during the first quarter of 2013 indicated that IBNR for natural catastrophe losses it initially recorded during 2012 exceeded the extent of losses that actually occurred, and consequently Montpelier decreased its loss and LAE reserves by a further $11.9 million during the first quarter of 2013.

The remaining net favorable development on prior year loss and LAE reserves recognized during the first quarter of 2013 related to several smaller adjustments made across multiple classes of business.

Prior Year Loss and LAE Development — three and six month periods ended June 30, 2012

During the second quarter of 2012, Montpelier experienced $16.7 million in net favorable development on prior year loss and LAE reserves.  This net favorable development related to the following events and factors:

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·IBNR reductions within the Other Specialty - Treaty line of business ($13.1 million decrease, $5.0 million of which related specifically to Montpelier Bermuda’s medical malpractice class of business),

·An individual risk loss incurred during 2008 at Montpelier Bermuda ($5.1 million increase), and

·Known 2011 and 2010 catastrophe events ($4.4 million decrease).

The remaining net favorable development on prior year loss and LAE reserves recognized during the second quarter of 2012 related to several smaller adjustments made across multiple classes of business.

During the six month period ended June 30, 2012, Montpelier experienced $45.4 million in net favorable development on prior year loss and LAE reserves.  In addition to the items noted above, the favorable development recognized during the six month period ended June 30, 2012 also included the following events and factors recognized during the first quarter of 2012:

·2011 Japan earthquake ($6.8 million decrease),

·2011 Danish cloudburst ($3.9 million increase),

·Three fire losses occurring during 2011 and 2010 ($3.9 million decrease),

·February 2011 New Zealand earthquake ($2.3 million increase), and

·Other known 2011 and 2010 catastrophe events ($1.3 million increase).

In addition to the foregoing, claims reported to Montpelier during the first quarter of 2012 indicated that the non-catastrophe property and casualty IBNR it initially recorded during 2011 and 2010 exceeded the extent of losses that actually occurred, and consequently Montpelier decreased its loss and LAE reserves by a further $9.8 million during the first quarter of 2012.

The remaining net favorable development on prior year loss and LAE reserves recognized during the first quarter of 2012 related to several smaller adjustments made across multiple classes of business.

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

Montpelier’s prior year losses and LAE incurred included foreign currency transaction gains (losses) of $6.1 million and $(2.0) million during the three month periods ended June 30, 2013 and 2012, respectively, and $(6.7) million and $0.6 million during the six month periods ended June 30, 2013 and 2012, 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 reported 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 included foreign currency translation gains (losses) of $(1.4) million and $8.8 million during the three month periods ended June 30, 2013 and 2012, respectively, and $21.3 million and $1.2 million during the six month periods ended June 30, 2013 and 2012, 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 reported 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 a basis consistent with those used in accounting for the underlying premiums assumed, and are reported as a reduction 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 reinsurance premiums are reported as a reduction in gross premiums written and gross loss and LAE reserves.

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.

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Earned reinsurance premiums ceded were $32.1 million and $29.7 million for the three month periods ended June 30, 2013 and 2012, respectively, and $53.0 million and $53.3 million for the six month periods ended June 30, 2013 and 2012, respectively.  Net increases in estimated ultimate reinsurance recoveries included in loss and LAE were $22.3 million and $10.3 million for the three month periods ended June 30, 2013 and 2012, respectively, and $12.1 million and $6.5 million for the six month periods ended June 30, 2013 and 2012, 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 generally 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 losses as of June 30, 2013 and December 31, 2012, are as follows:

	June 30, 2013				December 31, 2012
Rating	Amount		% of Total		Amount		% of Total
A+	$	6.5	24	%	$	1.3	19	%
A	10.8		41		1.7		26
A-	5.7		21		1.8		27
Unrated by A.M. Best	3.8		14		1.9		28
Total reinsurance recoverable on paid losses	$	26.8	100	%	$	6.7	100	%

The A.M. Best ratings of Montpelier’s reinsurers related to reinsurance recoverable on unpaid losses at June 30, 2013 and December 31, 2012, are as follows:

	June 30, 2013				December 31, 2012
Rating	Amount		% of Total		Amount		% of Total
A+	$	26.4	33	%	$	30.4	30	%
A	34.0		42		36.9		36
A-	2.9		4		8.3		8
Unrated by A.M. Best	17.0		21		27.1		26
Total reinsurance recoverable on unpaid losses	$	80.3	100	%	$	102.7	100	%

Montpelier’s unrated reinsurance recoverables as of June 30, 2013 and December 31, 2012, 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 June 30, 2013, Montpelier had no ongoing material insurance or reinsurance contract disputes.

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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:

	June 30, 2013				December 31, 2012
	Cost or Amortized Cost		FairValue		Cost or Amortized Cost		Fair Value
Fixed maturity investments:
Corporate debt securities	$	850.0	$	854.7	$	1,002.9	$	1,037.7
Residential mortgage-backed securities	644.9		637.2		616.2		630.0
Debt securities issued/sponsored by the U.S. Treasury and its agencies	449.7		435.3		466.4		473.0
Commercial mortgage-backed securities	162.1		163.9		148.6		155.6
Debt securities issued by non-U.S. governments and their agencies	92.9		88.3		109.4		113.3
Debt securities issued by U.S. states and political subdivisions	53.2		56.3		65.2		72.2
Other debt obligations	266.6		270.5		253.5		256.8
Total fixed maturity investments	$	2,519.4	$	2,506.2	$	2,662.2	$	2,738.6
Equity securities:
Exchange-listed funds	$	103.0	$	104.1	$	25.0	$	26.9
Other	11.7		12.0		13.1		14.0
Total equity securities	$	114.7	$	116.1	$	38.1	$	40.9

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 high quality, fixed maturity securities 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 June 30, 2013, Montpelier’s fixed maturities had an average credit quality of “AA-” (Very Strong) by Standard & Poor’s and an average duration of 3.4 years (inclusive of fixed maturity short positions).

As of June 30, 2013, 68% of Montpelier’s fixed maturity investments were either rated “A” (Strong) or better by Standard & Poor’s (or represented U.S. government or U.S. government-sponsored enterprise securities), 11% were rated “BBB” (Good) by Standard & Poor’s and 21% were either unrated or rated below “BBB”.

In addition to the investment securities presented above, Montpelier had open short fixed maturity positions of $88.6 million and $127.8 million as of June 30, 2013 and December 31, 2012, respectively.  Montpelier also had open short equity and investment option and future positions of $22.3 million and $11.0 million at June 30, 2013 and December 31, 2012, respectively.  Net unrealized gains (losses) associated with Montpelier’s open short positions totaled $2.6 million and $(4.0) million as of June 30, 2013 and December 31, 2012, 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:

	June 30, 2013				December 31, 2012
	Cost		Carrying Value		Cost		Carrying Value
Other investments carried at net asset value:
Limited partnership interests and private investment funds	$	69.6	$	69.6	$	76.6	$	76.6
Investment in the BCGR Listed Fund	1.4		1.4		50.0		50.0
Total other investments at net asset value	$	71.0	$	71.0	$	126.6	$	126.6
Other investments carried at fair value:
Limited partnership interests and private investment funds	$	1.1	$	0.7	$	15.8	$	12.7
Derivative instruments	0.4		8.4		0.7		(0.8		)
Total other investments carried at fair value	$	1.5	$	9.1	$	16.5	$	11.9
Other investments	$	72.5	$	80.1	$	143.1	$	138.5

Montpelier’s investments in limited partnership interests and private investment funds are carried at either their fair values or their underlying net asset values, depending on Montpelier’s ownership share. For those funds 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 limited partnerships and private investment funds and the BCGR Listed Fund is reported as net realized and unrealized investment gains (losses) on the Company’s consolidated statements of operations. Net appreciation or depreciation on Montpelier’s derivative instruments is reported as net income (loss) from derivative instruments.

Montpelier’s interests in limited partnerships and private investment funds that are carried at fair value relate to vehicles that invest in distressed mortgages. Redemptions from these investments occur at the discretion of the investment manager or, in other cases, subject to a unanimous vote of the partners. Montpelier expects to fully redeem its remaining limited partnerships and private investment funds that are carried at fair value during 2013.

Montpelier’s interests in limited partnerships and private investment funds that are carried at net asset value relate to vehicles that invest in the following:

·Small growth-oriented businesses,

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

·Public and private equity, fixed maturity and derivative instruments.

The majority of Montpelier’s interests in limited partnerships and private investment funds carried at net asset value can be redeemed or sold with no penalty upon 45 days’ notice.  Redemptions of the remaining interests are

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subject to  early termination fees and liquidity constraints.  Montpelier does not expect to redeem a significant portion of any of these investments during 2013.

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 June 30, 2013 and December 31, 2012.  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.

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 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 June 30, 2013 and December 31, 2012:

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	June 30, 2013
	Level 1		Level 2		Level 3		Total
Fixed maturity investments:
Corporate debt securities	$	—	$	850.5	$	4.2	$	854.7
Residential mortgage-backed securities	—		637.2		—		637.2
Debt securities issued/sponsored by the U.S. Treasury and its agencies	342.2		93.1		—		435.3
Commercial mortgage-backed securities	—		163.9		—		163.9
Debt securities issued by non-U.S. governments and their agencies	—		88.3		—		88.3
Debt securities issued by U.S. states and political subdivisions	—		56.3		—		56.3
Other debt obligations	—		242.0		28.5		270.5
Total fixed maturity investments	$	342.2	$	2,131.3	$	32.7	$	2,506.2
Equity securities:
Exchange-listed funds	$	75.6	$	28.5	$	—	$	104.1
Other	10.5		1.5		—		12.0
Total equity securities	$	86.1	$	30.0	$	—	$	116.1
Other investments carried at fair value	$	—	$	8.4	$	0.7	$	9.1
Total investments carried at fair value	$	428.3	$	2,169.7	$	33.4	$	2,631.4
Other investments carried at net asset value	$	—	$	57.7	$	13.3	$	71.0
Total investments	$	428.3	$	2,227.4	$	46.7	$	2,702.4

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	December 31, 2012
	Level 1		Level 2			Level 3		Total
Fixed maturity investments:
Corporate debt securities	$	—	$	942.3		$	95.4	$	1,037.7
Residential mortgage-backed securities	—		630.0			—		630.0
Debt securities issued/sponsored by the U.S. Treasury and its agencies	267.5		205.5			—		473.0
Commercial mortgage-backed securities	—		155.6			—		155.6
Debt securities issued by non-U.S. governments and their agencies	1.0		112.3			—		113.3
Debt securities issued by U.S. states and political subdivisions	—		72.2			—		72.2
Other debt obligations	—		240.6			16.2		256.8
Total fixed maturity investments	$	268.5	$	2,358.5		$	111.6	$	2,738.6
Equity securities:
Exchange-listed funds	$	—	$	26.9		$	—	$	26.9
Industrial	4.7		—			—		4.7
Consumer goods	4.3		—			—		4.3
Utilities	1.9		—			—		1.9
Other	3.1		—			—		3.1
Total equity securities	$	14.0	$	26.9		$	—	$	40.9
Other investments carried at fair value	$	—	$	(0.8	)	$	12.7	$	11.9
Total investments carried at fair value	$	282.5	$	2,384.6		$	124.3	$	2,791.4
Other investments carried at net asset value	$	—	$	102.8		$	23.8	$	126.6
Total investments	$	282.5	$	2,487.4		$	148.1	$	2,918.0

Level 1 Securities

Montpelier’s investments classified as Level 1 as of June 30, 2013 and December 31, 2012, consisted of U.S. Treasuries, debt securities issued by foreign governments and long equity positions that are publicly listed and/or actively traded in an established market.  In addition, as of June 30, 2013 and December 31, 2012, approximately 22% and 17%, respectively, of Montpelier’s open short fixed maturity positions, and all of Montpelier’s short equity positions, were valued on the basis of Level 1 inputs.

Level 2 Securities

For Montpelier’s investments classified as Level 2 as of June 30, 2013 and December 31, 2012, 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 June 30, 2013 and December 31, 2012, approximately 78% and 83%, respectively, of Montpelier’s open short fixed maturity positions are 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

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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.

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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.

Equity securities.  Montpelier’s Level 2 equity securities represent investments in exchange-listed funds which are priced based on net asset values provided by the relevant investment managers.

There were no transfers between Levels 1 and 2 during the three and six month periods ended June 30, 2013 and 2012.

Level 3 Securities

Montpelier’s investments classified as Level 3 as of June 30, 2013 and December 31, 2012 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 limited partnerships and private investment funds.

Further details for selected investment types follow:

Corporate debt securities.  Montpelier’s Level 3 corporate debt securities represent bank loans that are priced using non-binding broker quotes that cannot be corroborated with other externally obtained information.

Other debt obligations.  Montpelier’s Level 3 other debt 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.

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Other investments.  Montpelier’s Level 3 other investments at June 30, 2013 and December 31, 2012 include investments in limited partnerships and private investment funds that invest in distressed mortgages.  The fair value of these investments is based on net asset values obtained from the investment manager or general partner of the respective entity. The underlying investments held by the investee, which form the basis of the net asset valuation, can require significant management judgment by the investee to determine the underlying value.  Montpelier also considers financial and other information in making its own determination of value. Montpelier regularly reviews the performance of these entities directly with the fund and partnership managers.

As of June 30, 2013 and December 31, 2012, the Company’s Level 3 investments measured at fair value represented 1.3% and 4.5% of its total investments measured at fair value, respectively.  As of June 30, 2013 and December 31, 2012, the Company’s total Level 3 investments represented 1.7% and 5.1% of its total investments, respectively.

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 and six month periods ended June 30, 2013 and 2012:

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	Three Month Period Ended June 30, 2013
	Beginning Level 3 balance		Purchases		Sales and maturities			Net realized gains (losses)			Net unrealized gains (losses)		Net transfers out		Ending Level 3 balance
Fixed maturity investments:
Corporate debt securities	$	3.1	$	1.3	$	(0.2	)	$	—		$	—	$	—	$	4.2
Other debt obligations	18.8		10.4		(1.5		)	—			0.8		—		28.5
Total fixed maturity investments	21.9		11.7		(1.7		)	—			0.8		—		32.7
Other investments	1.2		—		(0.7		)	(0.5		)	0.7		—		0.7
Total Level 3 investments at fair value	$	23.1	$	11.7	$	(2.4	)	$	(0.5	)	$	1.5	$	—	$	33.4

	Six Month Period Ended June 30, 2013
	Beginning Level 3 balance		Purchases		Sales and maturities			Net realized gains (losses)			Net unrealized gains (losses)			Net transfers out			Ending Level 3 balance
Fixed maturity investments:
Corporate debt securities	$	95.4	$	9.0	$	(25.5	)	$	(4.2	)	$	10.4		$	(80.9	)	$	4.2
Other debt obligations	16.2		29.9		(6.0		)	—			1.2			(12.8		)	28.5
Total fixed maturity investments	111.6		38.9		(31.5		)	(4.2		)	11.6			(93.7		)	32.7
Other investments	12.7		—		(11.6		)	1.5			(1.9		)	—			0.7
Total Level 3 investments at fair value	$	124.3	$	38.9	$	(43.1	)	$	(2.7	)	$	9.7		$	(93.7	)	$	33.4

	Three Month Period Ended June 30, 2012
	Beginning Level 3 balance		Purchases		Sales and maturities			Net realized gains (losses)			Net unrealized gains (losses)			Ending Level 3 balance
Fixed maturity investments:
Corporate debt securities	$	52.1	$	32.5	$	(9.2	)	$	(0.1	)	$	0.3		$	75.6
Other debt obligations	8.8		—		(1.4		)	—			(0.1		)	7.3
Total fixed maturity investments	60.9		32.5		(10.6		)	(0.1		)	0.2			82.9
Other investments	28.4		—		(2.8		)	1.0			(0.6		)	26.0
Total Level 3 investments at fair value	$	89.3	$	32.5	$	(13.4	)	$	0.9		$	(0.4	)	$	108.9

	Six Month Period Ended June 30, 2012
	Beginning Level 3 balance		Purchases		Sales and maturities			Net realized gains		Net unrealized gains		Ending Level 3 balance
Fixed maturity investments:
Corporate debt securities	$	44.7	$	81.5	$	(52.1	)	$	0.5	$	1.0	$	75.6
Other debt obligations	9.7		—		(2.4		)	—		—		7.3
Total fixed maturity investments	54.4		81.5		(54.5		)	0.5		1.0		82.9
Other investments	29.3		—		(4.8		)	1.3		0.2		26.0
Total Level 3 investments at fair value	$	83.7	$	81.5	$	(59.3	)	$	1.8	$	1.2	$	108.9

During the first quarter of 2013, Montpelier transferred most of its bank loans from Level 3 to Level 2, reflecting a gradual shift toward holdings that are more broadly syndicated than had previously been the case.  Additionally, Montpelier has increased its reliance on pricing services that base their valuations of bank loans on actual transactions, as opposed to non-binding broker quotes.

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There were no transfers of Level 3 investments during the three month period ended June 30, 2013 or the  three or six month periods ended June 30, 2012.

Changes in Carrying Value

Changes in the carrying value of Montpelier’s investment portfolio and its short investment positions for the three and six month periods ended June 30, 2013 and 2012, 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 June 30, 2013:
Fixed maturity investments	$	10.5		$	(68.8	)	$	(0.2	)	$	(58.5	)
Equity securities	0.3			(2.6		)	(0.9		)	(3.2		)
Other investments	(3.9		)	3.3			(5.4		)	(6.0		)
Three Month Period Ended June 30, 2012:
Fixed maturity investments	$	6.1		$	7.0		$	(1.9	)	$	11.2
Equity securities	0.7			(0.9		)	(0.8		)	(1.0		)
Other investments	0.6			(0.2		)	2.5			2.9

	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
Six Month Period Ended June 30, 2013:
Fixed maturity investments	$	21.9		$	(83.3	)	$	(4.0	)	$	(65.4	)
Equity securities	0.6			(1.8		)	(2.0		)	(3.2		)
Other investments	(6.5		)	7.2			0.2			0.9
Six Month Period Ended June 30, 2012:
Fixed maturity investments	$	13.8		$	21.8		$	1.2		$	36.8
Equity securities	23.2			(16.2		)	(1.6		)	5.4
Other investments	(1.4		)	4.5			4.0			7.1

(1)Represents net realized and unrealized foreign exchange gains and losses from investments and income and losses derived 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 Note 6).  These derivatives are carried at fair value within other investments on the Company’s consolidated balance sheets.

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Net Investment Income

Montpelier’s net investment income for the three and six month periods ended June 30, 2013 and 2012 consisted of the following:

	Three Month Periods Ended June 30,						Six Month Periods Ended June 30,
	2013			2012			2013			2012
Fixed maturity investments	$	18.7		$	18.0		$	36.7		$	36.4
Cash and cash equivalents	0.1			0.1			0.2			0.2
Equity securities	—			0.1			0.2			0.2
Other investments	—			0.5			0.1			1.0
Total investment income	18.8			18.7			37.2			37.8
Investment expenses	(2.1		)	(1.5		)	(4.1		)	(3.0		)
Net investment income	$	16.7		$	17.2		$	33.1		$	34.8

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 (the “Blue Water Trusts”) established for the benefit of ceding companies.  As of June 30, 2013 and December 31, 2012, the fair value of all assets held in the Blue Water Trusts was $165.6 million and $22.5 million, which met the minimum value required on those dates.

In 2011 Montpelier Re entered into a Reinsurance Trust (the “MUSIC Trust”) in connection with the MUSIC Sale. The MUSIC Trust was established as a means of providing statutory credit to MUSIC in support of the MUSIC Quota Share and the Loss Development Cover.  As of June 30, 2013 and December 31, 2012, the fair value of all assets held in the MUSIC Trust was $39.8 million and $45.4 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 and Montpelier Re has been granted authorized or trusteed reinsurer status in all U.S. states and the District of Columbia.  As of June 30, 2013 and  December 31, 2012, the fair value of all assets held in the Reinsurance Trust was $335.3 million and $338.2 million, respectively, which met the minimum value required on those dates.

A number of states in the U.S. have recently considered reducing their collateral requirements for risks ceded to financially sound non-U.S. reinsurers.  In 2011 Montpelier Re established a second Multi-Beneficiary Reinsurance Trust (the “FL Trust”) in connection with its reduced collateral requirements in Florida.  As of June 30, 2013 and December 31, 2012, the fair value of all assets held in the FL Trust was $25.9 million and $26.0 million, respectively, which met the minimum value required on those dates.

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In 2010 Montpelier Re 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 June 30, 2013 and December 31, 2012, the fair value of all assets held in the Lloyd’s Capital Trust was $157.2 million and $149.6 million, respectively, which met the minimum value required on those dates.

Premiums received by Syndicate 5151 are 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.  As of June 30, 2013 and December 31, 2012, the fair value of all assets held in the Premiums Trust Funds was $335.2 million and $371.9 million, respectively. See Note 11.

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 $2,973.6 million and  $1,840.1 million for the six month periods ended June 30, 2013 and 2012, respectively.  Maturities, calls and paydowns of investments totaled $244.9 million and $363.9 million for the six month periods ended June 30, 2013 and 2012, respectively.

Montpelier’s sales of investments for the six month period ended June 30, 2013, includes the portion of its investment in the BCGR Listed Fund ($47.3 million) that was deployed into, and received by, the BCGR Cell during the period. Whereas Montpelier fully consolidates the BCGR Cell’s assets and operations within its consolidated financial statements, it does not consolidate the BCGR Listed Fund’s assets or operations.

There were no non-cash exchanges or involuntary sales of investment securities during these periods.

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.

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 United States Judicial Panel on Multidistrict Litigation.

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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 United States 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, Letter of Credit Facilities and Trust Arrangements

Senior Unsecured Debt Due 2022 (“2022 Senior Notes”)

On October 5, 2012, the Company issued $300.0 million of 2022 Senior Notes. 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 and were issued at a price of 99.682% of their principal amount, providing an effective yield to investors of 4.74%.  The 2022 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 2022 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 2022 Senior Notes, after deducting the issuance discount and debt issuance costs, were $296.4 million.  The net proceeds were used to redeem the 2013 Senior Notes and for general corporate purposes. The debt issuance costs of $2.7 million have been capitalized within other assets on the Company’s consolidated balance sheets and are being amortized over the life of the 2022 Senior Notes.

The carrying value of the 2022 Senior Notes at June 30, 2013 and December 31, 2012, was $299.1 million.

The Company incurred interest expense on the 2022 Senior Notes of $3.5 million and $7.0 million during the three and six month periods ended June 30, 2013, respectively. The Company paid $7.4 million in interest on the 2022 Senior Notes during the six month period ended June 30, 2013.

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Senior Unsecured Debt Due 2013 (“2013 Senior Notes”)

During 2003 the Company issued $250.0 million of 2013 Senior Notes. The 2013 Senior Notes bore interest at a fixed rate of 6.125% per annum, payable semi-annually in arrears on February 15 and August 15 of each year and were scheduled to mature on August 15, 2013.

On November 5, 2012, the Company fully redeemed the 2013 Senior Notes at a “make-whole” redemption price of $237.6 million (104.2% of the principal thereof), plus accrued and unpaid interest to the redemption date.  At the time of redemption, the remaining principal amount of the 2013 Senior Notes was $227.9 million.

The Company incurred interest expense on the 2013 Senior Notes of $3.5 million and $7.0 million during the three and six month periods ended June 30, 2012, respectively.  The Company paid $7.0 million in interest on the 2013 Senior Notes during the six month period ended June 30, 2012.

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 of 3-month LIBOR plus 380 basis points, reset quarterly.  This floating rate varied from 4.07% to 4.11% during the six month period ended June 30, 2013, and from 4.26% to 4.38% during the six month ended June 30, 2012.

The Company incurred interest expense on the Trust Preferred Securities of $1.1 million during each of the three month periods ended June 30, 2013 and 2012, respectively, and $2.1 million and $2.2 million during the six month periods ended June 30, 2013 and 2012, respectively.  The Company paid $2.1 million and $2.2 million in interest on the Trust Preferred Securities during the six month periods ended June 30, 2013 and 2012, 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.

LIBOR Swap

On February 7, 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 swap agreement 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 statement of operations, as opposed to interest and financing expenses.  See Note 6.

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Letter of Credit Facilities

In the normal course of business, 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 $32.1 million and $128.0 million at June 30, 2013 and December 31, 2012, respectively. The following table outlines these facilities as of June 30, 2013:

Secured operational Letter of Credit Facilities	Total Capacity		Amount Drawn		Expiry Date
Four Year Committed Facility	$	75.0	$	2.3	Oct. 2016
Bilateral Facility	75.0		23.0		None

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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 June 30, 2013 and December 31, 2012, the Company and Montpelier Re were in compliance with all covenants.

The Four Year Committed Facility 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.

The Bilateral Facility is subject to an annual commitment fee of 0.45%.  The commitment fee on this facility is charged on drawn balances only.

Trust Arrangements

In 2012 Blue Water Re commenced its operations and established the Blue Water Trusts as a means of providing collateralized reinsurance protection to its cedants.

In 2011 Montpelier Re established the MUSIC Trust as a means of providing statutory credit to MUSIC.

In 2010 Montpelier Re established the Reinsurance Trust as a means of providing statutory credit to certain of Montpelier Re’s U.S. cedants.

In 2011 Montpelier Re established the FL Trust in connection with its reduced collateral requirements to cedants domiciled in Florida.

In 2010 Montpelier established the Lloyd’s Capital Trust in order to meet MCL’s ongoing FAL requirements.

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

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 exchange 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”).

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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.  The fair value of the LIBOR Swap was derived based on other observable (Level 2) inputs. See Note 5.

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

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 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 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 and balance sheet location of Montpelier’s derivative instruments recorded at June 30, 2013 and December 31, 2012 and the net income (loss) from such derivative instruments during the three and six month periods ended June 30, 2013 and 2012:

		June 30, 2013				December 31, 2012
Derivative Instrument	Balance Sheet Location	Fair Value			Notional Units	Fair Value			Notional Units
Foreign Exchange Contracts:
U.S. Dollars purchased	Other Investments	$	4.8		308.0	$	(1.1	)	165.0
U.S. Dollars sold	Other Investments	(1.7		)	266.5	1.6			155.2
Credit Derivatives	Other Investments	8.1			333.0	(0.4		)	155.1
Interest Rate Contracts	Other Investments	(3.4		)	1,822.0	(0.2		)	137.8
Investment Options and Futures (long)	Other Investments	0.5			0.1	1.0			10.0
LIBOR Swap	Other Investments	0.1			100.0	(1.7		)	100.0
ILW Swaps	Other Assets	2.0			25.0	0.1			3.0
Investment Options and Futures (short)	Liabilities	0.2			13.9	—			—

41

	Three Month Periods Ended June 30,						Six Month Periods Ended June 30,
Income (Loss) From Derivative Instruments:	2013			2012			2013			2012
Foreign Exchange Contracts - underwriting activities	$	(6.1	)	$	(0.9	)	$	(10.2	)	$	2.2
Foreign Exchange Contracts - investing activities	3.6			2.4			6.5			(0.9		)
Credit Derivatives	(3.8		)	1.5			(4.3		)	2.1
Interest Rate Contracts	(3.8		)	1.0			1.2			1.9
Investment Options and Futures	(3.1		)	—			(1.6		)	(0.5		)
ILW Swaps	(0.5		)	(0.3		)	(0.6		)	(0.3		)
LIBOR Swap	1.5			(1.6		)	1.4			(0.9		)
Net income (loss) from derivative instruments	$	(12.2	)	$	2.1		$	(7.6	)	$	3.6

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

Foreign Exchange Contracts

From time to time Montpelier, either directly or indirectly through its investment managers, enters into foreign currency exchange 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 its underwriting and investing activities.

Foreign Exchange Contracts designed to protect Montpelier’s insurance and reinsurance balances against movements in foreign 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 exchange rates or to enhance Montpelier’s investment performance.

42

Montpelier’s open Foreign Exchange Contracts at June 30, 2013 were denominated in British pounds, Brazilian reals, New Zealand dollars, Japanese yen, European Union euros, Canadian dollars, Australian dollars, South African rands, Mexican pesos and Malaysian ringgits.  Montpelier’s open Foreign Exchange Contracts at December 31, 2012 were denominated in British pounds, New Zealand dollars, European Union euros, Canadian dollars, Australian dollars, Japanese yen and Brazilian reals

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 arrangements whose value is derived from the credit risk associated with an underlying bond, loan or other financial asset.  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 increases (or decreases). Conversely, when Montpelier is selling credit protection, the value of its derivative position decreases (or increases) when the associated credit risk 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.  As of June 30, 2013 and December 31, 2012, Montpelier had open long option and future positions with fair values of $0.5 million and $1.0 million, respectively, and open short option and future positions with fair values of $0.2 million and zero million, respectively.

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

43

ILW Swaps

In June 2013 Blue Water Re entered into an ILW Swap (the “Blue Water Re Swap”) with a third party in order to purchase protection against its Florida wind exposures from June 1, 2013 to December 31, 2013.  In return for a fixed payment of $0.5 million, Blue Water Re is entitled to receive a floating payment in the event of losses incurred by the insurance industry as a whole.  The maximum recovery to Blue Water Re is $5.0 million.  Through June 30, 2013, no industry loss event has occurred which would have triggered a recovery by Blue Water Re under the Blue Water Re Swap.

During the second quarter of 2013, Montpelier Bermuda entered into four ILW Swaps (the “Japan Wind Swaps”) with a third party in order to purchase protection against its Japan-based wind and flood exposures from April 1, 2013 to December 15, 2013.  In return for combined fixed payments totaling $2.0 million, Montpelier Re is entitled to receive floating payments in the event of losses incurred by the insurance industry as a whole. The maximum recovery to Montpelier Re under each Japan Wind Swap is $5.0 million, or $20.0 million in total.  Through June 30, 2013, no industry loss event has occurred which would have triggered a recovery by Montpelier Re under the Japan Wind Swaps.

44

In May 2012 Syndicate 5151 entered into an ILW Swap (the “Engineering Swap”) with a third party in order to purchase protection against its construction and engineering exposures from June 11, 2012 to June 30, 2013.  In return for a fixed payment of $0.3 million, Syndicate 5151 was entitled to receive a floating payment in the event of losses incurred by the insurance industry as a whole. The maximum recovery to Syndicate 5151 under the Engineering Swap was $3.0 million.  The Engineering Swap expired without any recovery to Syndicate 5151.

The fair value of the ILW Swaps are derived based on unobservable (Level 3) inputs.

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, separately as a single class.  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

On May 10, 2011, the Company issued the Preferred Shares which have 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.

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 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.

The Preferred Shares are listed on the New York Stock Exchange and the Bermuda Stock Exchange.

Common Shares

The following table summarizes the Company’s Common Share activity during the six month periods ended June 30, 2013 and 2012:

45

	Six Month Periods Ended June 30,
(in Common Shares)	2013		2012
Beginning Common Shares outstanding	55,269,690		60,864,174
Acquisitions of Common Shares:
Common Shares repurchased and retired	(4,527,795	)	(3,917,939	)
Common Shares repurchased and placed in treasury	—		(431,800	)
Issuances of Common Shares:
Issuances in satisfaction of vested Restricted Share Unit (“RSU”) obligations	278,212		47,562
Ending Common Shares outstanding	51,020,107		56,561,997

As of June 30, 2013, the Company had 51,020,107 Common Shares outstanding consisting of 52,183,346 Common Shares issued less 1,163,239 Common Shares held in treasury.  As of December 31, 2012, the Company had 55,269,690 Common Shares outstanding consisting of 56,711,141 Common Shares issued less 1,441,451 Common Shares held in treasury.

2013 Common Share activity

The Company repurchased 4,058,573 Common Shares pursuant to a publicly announced share repurchase program at an average price of $25.16 per share during the first half of 2013. These Common Shares were subsequently retired.

On March 7, 2013, the Board authorized the private purchase of 469,222 Common Shares from Mr. Thomas G.S. Busher, the Company’s COO and Head of European Operations, in connection with his planned retirement.  The price paid to Mr. Busher was $24.62 per share, which was $0.63 less than the market price (as per the New York Stock Exchange) at the time the agreement was reached. See Note 14.

The Company issued 278,212 Common Shares to employees and directors in satisfaction of vested RSU obligations during the first half of 2013. See Note 12. The Common Shares were issued from the Company’s treasury resulting in a loss on issuance of $0.5 million, which was recorded as a decrease to additional paid-in capital.

2012 Common Share activity

The Company repurchased 3,917,939 Common Shares pursuant to a publicly announced share repurchase program at an average price of $19.57 per share during the first half of 2012. These Common Shares were subsequently retired.

The Company repurchased a further 431,800 Common Shares pursuant to a publicly announced share repurchase program at an average price of $20.75 per share during the first half of 2012. These Common Shares were placed in the Company’s treasury and are expected to be re-issued to employees and directors in satisfaction of existing and future RSU obligations.

46

The Company issued 47,562 Common Shares to employees and directors in satisfaction of vested RSU obligations during the first half of 2012. See Note 13. The Common Shares were issued from the Company’s treasury resulting in a gain on issuance of $0.1 million, which was recorded as an increase to additional paid-in capital.

Common Share Repurchase Authorization

As of June 30, 2013, the Company had a remaining share repurchase authorization of $172.0 million. There is no stated expiration date associated with the Company’s share repurchase authorization.

Common and Preferred Share Dividends Declared and Paid

The Company declared cash dividends per Common Share totaling $0.115 and $0.105 during the three month periods ended June 30, 2013 and 2012, respectively and $0.23 and $0.21 during the six month periods ended June 30, 2013 and 2012, respectively.  The total amount of dividends paid to holders of Common Shares during each of the six month periods ended June 30, 2013 and 2012, was $12.6 million.  As of June 30, 2013 and December 31, 2012, the Company had $5.8 million and $6.4 million, respectively, of dividends payable to holders of Common Shares.

The Company declared cash dividends per Preferred Share totaling $0.555 during each of the three month periods ended June 30, 2013 and 2012, respectively, and $1.109 during each of the six month periods ended June 30, 2013 and 2012, respectively.  The total amount of dividends paid to holders of Preferred Shares during each of the six month periods ended June 30, 2013 and 2012, was $6.6 million.  As of June 30, 2013 and December 31, 2012, the Company had $3.4 million and $3.3 million, respectively, of dividends payable to holders of Preferred Shares.

NOTE 8.  Segment Reporting

The Company currently operates through four reportable segments: Montpelier Bermuda, Montpelier Syndicate 5151, Blue Capital and MUSIC Run-Off.  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 intercompany 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, certain intermediate holding and service companies and eliminations relating to intercompany reinsurance and support services are collectively referred to as “Corporate and Other.”

47

The following table summarizes Montpelier’s identifiable assets by segment as of June 30, 2013 and December 31, 2012:

	June 30, 2013		December 31, 2012
Montpelier Bermuda	$	3,109.0	$	3,126.5
Montpelier Syndicate 5151	555.7		552.9
Blue Capital	224.2		74.0
MUSIC Run-Off	39.9		48.9
Corporate and Other, including intercompany eliminations	6.9		7.8
Total assets	$	3,935.7	$	3,810.1

A summary of Montpelier’s statements of operations by segment for the three month period ended June 30, 2013 follows:

Three Month Period Ended June 30, 2013	Montpelier Bermuda			Montpelier Syndicate 5151			Blue Capital			MUSIC Run-Off			Corporate and Other			Total
Gross premiums written	$	160.6		$	58.9		$	22.6		$	0.3		$	0.3		$	242.7
Ceded reinsurance premiums	(32.3		)	(9.3		)	(3.0		)	—			(0.3		)	(44.9		)
Net premiums written	128.3			49.6			19.6			0.3			—			197.8
Change in net unearned premiums	(44.2		)	(0.6		)	(14.1		)	—			—			(58.9		)
Net premiums earned	84.1			49.0			5.5			0.3			—			138.9
Loss and LAE	(18.9		)	(25.4		)	(2.0		)	(0.5		)	—			(46.8		)
Acquisition costs	(10.0		)	(11.9		)	(0.6		)	(0.1		)	—			(22.6		)
General and administrative expenses	(8.6		)	(7.9		)	(0.9		)	—			(9.0		)	(26.4		)
Underwriting income	46.6			3.8			2.0			(0.3		)	(9.0		)	43.1
Net investment income	15.2			1.3			—			0.2			—			16.7
Net investment and foreign exchange losses	(61.0		)	(4.7		)	—			(0.7		)	(0.1		)	(66.5		)
Net loss from derivative instruments	(14.2		)	0.5			—			—			1.5			(12.2		)
Other revenue	(0.7		)	(0.2		)	0.2			—			0.7			—
Interest and other financing expenses	—			(0.5		)	—			—			(4.2		)	(4.7		)
Loss before income taxes	$	(14.1	)	$	0.2		$	2.2		$	(0.8	)	$	(11.1	)	$	(23.6	)

48

A summary of Montpelier’s statements of operations by segment for the three month period ended June 30, 2012 follows:

Three Month Period Ended June 30, 2012	Montpelier  Bermuda			Montpelier Syndicate 5151			Blue Capital			MUSIC Run-Off			Corporate and Other			Total
Gross premiums written	$	186.9		$	63.4		$	2.4		$	0.2		$	0.6		$	253.5
Ceded reinsurance premiums	(40.5		)	(1.6		)	—			—			(0.6		)	(42.7		)
Net premiums written	146.4			61.8			2.4			0.2			—			210.8
Change in unearned premiums	(61.5		)	(9.1		)	(2.0		)	8.2			—			(64.4		)
Net premiums earned	84.9			52.7			0.4			8.4			—			146.4
Loss and LAE	(19.5		)	(32.2		)	—			(5.5		)	—			(57.2		)
Acquisition costs	(8.9		)	(11.8		)	—			(2.9		)	—			(23.6		)
General and administrative expenses	(11.0		)	(11.2		)	(0.8		)	—			(8.0		)	(31.0		)
Underwriting income	45.5			(2.5		)	(0.4		)	—			(8.0		)	34.6
Net investment income	16.4			0.5			—			0.3			—			17.2
Net investment and foreign exchange	8.9			7.5			—			—			(0.2		)	16.2
Net income from derivative instruments	4.1			(0.2		)	—			—			(1.8		)	2.1
Other revenue	—			0.1			—			—			0.1			0.2
Interest and other financing expenses	(0.2		)	(0.7		)	—			—			(3.9		)	(4.8		)
Income before income taxes	$	74.7		$	4.7		$	(0.4	)	$	0.3		$	(13.8	)	$	65.5

A summary of Montpelier’s statements of operations by segment for the six month period ended June 30, 2013 follows:

Six Month Period Ended June 30, 2013	Montpelier Bermuda			Montpelier Syndicate 5151			Blue Capital			MUSIC Run-Off			Corporate and Other			Total
Gross premiums written	$	336.5		$	128.7		$	37.2		$	0.6		$	0.9		$	503.9
Ceded reinsurance premiums	(58.2		)	(18.0		)	(3.0		)	—			(0.9		)	(80.1		)
Net premiums written	278.3			110.7			34.2			0.6			—			423.8
Change in net unearned premiums	(93.0		)	(7.3		)	(24.9		)	—			—			(125.2		)
Net premiums earned	185.3			103.4			9.3			0.6			—			298.6
Loss and LAE	(26.2		)	(68.5		)	(2.0		)	(0.7		)	—			(97.4		)
Acquisition costs	(18.8		)	(24.8		)	(0.9		)	(0.2		)	—			(44.7		)
General and administrative expenses	(17.8		)	(16.2		)	(1.6		)	—			(17.7		)	(53.3		)
Underwriting income	122.5			(6.1		)	4.8			(0.3		)	(17.7		)	103.2
Net investment income	30.0			2.7			—			0.4			—			33.1
Net investment and foreign exchange losses	(69.1		)	25.1			—			(0.8		)	(1.3		)	(46.1		)
Net loss from derivative instruments	(6.7		)	(2.3		)	—			—			1.4			(7.6		)
Other revenue	—			—			0.7			—			(0.7		)	—
Interest and other financing expenses	(0.1		)	(1.0		)	—			—			(8.3		)	(9.4		)
Income before income taxes	$	76.6		$	18.4		$	5.5		$	(0.7	)	$	(26.6	)	$	73.2

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A summary of Montpelier’s statements of operations by segment for the six month period ended June 30, 2012 follows:

Six Month Period Ended June 30, 2012	Montpelier Bermuda			Montpelier Syndicate 5151			Blue Capital			MUSIC Run-Off			Corporate and Other			Total
Gross premiums written	$	367.6		$	138.1		$	2.4		$	1.5		$	3.6		$	513.2
Ceded reinsurance premiums	(67.1		)	(11.7		)	—			—			(3.6		)	(82.4		)
Net premiums written	300.5			126.4			2.4			1.5			—			430.8
Change in unearned premiums	(117.3		)	(22.9		)	(2.0		)	18.3			—			(123.9		)
Net premiums earned	183.2			103.5			0.4			19.8			—			306.9
Loss and LAE	(35.7		)	(51.8		)	—			(13.7		)	—			(101.2		)
Acquisition costs	(21.1		)	(20.4		)	—			(6.9		)	—			(48.4		)
General and administrative expenses	(20.9		)	(19.8		)	(0.8		)	—			(15.2		)	(56.7		)
Underwriting income	105.5			11.5			(0.4		)	(0.8		)	(15.2		)	100.6
Net investment income	33.2			1.0			—			0.6			—			34.8
Net investment and foreign exchange	45.2			0.6			—			0.3			(0.1		)	46.0
Net income from derivative instruments	4.9			(0.2		)	—			—			(1.1		)	3.6
Other revenue	0.1			0.2			—			0.2			0.2			0.7
Interest and other financing expenses	(0.6		)	(0.7		)	—			—			(8.5		)	(9.8		)
Income before income taxes	$	188.3		$	12.4		$	(0.4	)	$	0.3		$	(24.7	)	$	175.9

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 June 30, 2013 and 2012:

Three Month Period Ended June 30, 2013	Montpelier Bermuda		Montpelier Syndicate 5151		Blue Capital		MUSIC Run-Off		Corporate and Other (1)			Total
Property Catastrophe - Treaty	$	120.0	$	0.9	$	22.6	$	—	$	0.3		$	143.8
Property Specialty - Treaty	12.0		0.4		—		—		0.1			12.5
Other Specialty - Treaty	16.2		15.4		—		—		(0.1		)	31.5
Property and Specialty Individual Risk	12.4		42.2		—		0.3		—			54.9
Total gross premiums written	$	160.6	$	58.9	$	22.6	$	0.3	$	0.3		$	242.7

Three Month Period Ended June 30, 2012	Montpelier Bermuda		Montpelier Syndicate 5151		Blue Capital		MUSIC Run-Off		Corporate and Other (1)		Total
Property Catastrophe - Treaty	$	148.0	$	0.9	$	2.4	$	—	$	0.6	$	151.9
Property Specialty - Treaty	12.3		0.5		—		—		—		12.8
Other Specialty - Treaty	11.7		22.9		—		—		—		34.6
Property and Specialty Individual Risk	14.9		39.1		—		0.2		—		54.2
Total gross premiums written	$	186.9	$	63.4	$	2.4	$	0.2	$	0.6	$	253.5

(1)Represents intercompany excess-of-loss reinsurance arrangements between Montpelier Bermuda and Montpelier Syndicate 5151 and between MUSIC Run-Off and Montpelier Syndicate 5151, each of which is eliminated in consolidation.

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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.

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:

51

	Three Month Periods Ended June 30,
	2013				2012
U.S. and Canada	$	162.2	67	%	$	165.4	65	%
Worldwide (1)	45.1		18		53.1		21
Japan	17.0		7		20.6		8
U.K. and Ireland	4.3		2		3.6		1
Worldwide, excluding U.S. and Canada (2)	4.2		2		0.6		—
Western Europe, excluding the U.K. and Ireland	1.4		1		3.7		2
Other	8.5		3		6.5		3
Total gross premiums written	$	242.7	100	%	$	253.5	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.

The following tables present Montpelier’s gross premiums written, by line of business and reportable segment, during the six month periods ended June 30, 2013 and 2012:

Six Month Period Ended June 30, 2013	Montpelier Bermuda		Montpelier Syndicate 5151		Blue Capital		MUSIC Run-Off		Corporate and Other (1)			Total
Property Catastrophe - Treaty	$	243.2	$	4.2	$	37.2	$	—	$	0.9		$	285.5
Property Specialty - Treaty	24.0		3.0		—		—		0.1			27.1
Other Specialty - Treaty	46.9		35.3		—		—		(0.1		)	82.1
Property and Specialty Individual Risk	22.4		86.2		—		0.6		—			109.2
Total gross premiums written	$	336.5	$	128.7	$	37.2	$	0.6	$	0.9		$	503.9

Six Month Period Ended June 30, 2012	Montpelier Bermuda		Montpelier Syndicate 5151		Blue Capital		MUSIC Run-Off		Corporate and Other (1)		Total
Property Catastrophe - Treaty	$	275.7	$	9.0	$	2.4	$	—	$	3.6	$	290.7
Property Specialty - Treaty	23.5		2.8		—		—		—		26.3
Other Specialty - Treaty	45.2		46.2		—		—		—		91.4
Property and Specialty Individual Risk	23.2		80.1		—		1.5		—		104.8
Total gross premiums written	$	367.6	$	138.1	$	2.4	$	1.5	$	3.6	$	513.2

(1)Represents intercompany excess-of-loss reinsurance arrangements between Montpelier Bermuda and Montpelier Syndicate 5151 and between MUSIC Run-Off and Montpelier Syndicate 5151, each of which is eliminated in consolidation.

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

52

	Six Month Periods Ended June 30,
	2013				2012
U.S. and Canada	$	282.0	56	%	$	278.8	54	%
Worldwide (1)	112.0		22		128.6		25
Worldwide, excluding U.S. and Canada (2)	27.0		5		18.3		4
Western Europe, excluding the U.K. and Ireland	26.6		5		25.0		5
Japan	19.1		4		22.8		4
U.K. and Ireland	14.1		3		16.1		3
Other	23.1		5		23.6		5
Total gross premiums written	$	503.9	100	%	$	513.2	100	%

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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 June 30, 2013 and 2012:

Three Month Period Ended June 30, 2013	Montpelier Bermuda		Montpelier Syndicate 5151		Blue Capital		MUSIC Run-Off		Corporate and Other (1)			Total
Property Catastrophe - Treaty	$	59.2	$	1.5	$	5.5	$	—	$	0.2		$	66.4
Property Specialty - Treaty	11.7		1.7		—		—		(0.3		)	13.1
Other Specialty - Treaty	10.4		17.3		—		—		—			27.7
Property and Specialty Individual Risk	2.8		28.5		—		0.3		0.1			31.7
Total net premiums earned	$	84.1	$	49.0	$	5.5	$	0.3	$	—		$	138.9

Three Month Period Ended June 30, 2012	Montpelier Bermuda		Montpelier Syndicate 5151		Blue Capital		MUSIC Run-Off		Corporate and Other (1)		Total
Property Catastrophe - Treaty	$	55.7	$	3.4	$	0.4	$	—	$	—	$	59.5
Property Specialty - Treaty	11.5		1.6		—		—		—		13.1
Other Specialty - Treaty	10.3		21.2		—		—		—		31.5
Property and Specialty Individual Risk	7.4		26.5		—		8.4		—		42.3
Total net premiums earned	$	84.9	$	52.7	$	0.4	$	8.4	$	—	$	146.4

(1)Represents intercompany excess-of-loss reinsurance arrangement between Montpelier Bermuda and Montpelier Syndicate 5151 which is eliminated in consolidation.

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

	Three Month Periods Ended June 30,
	2013				2012
U.S. and Canada	$	81.6	59	%	$	79.1	54	%
Worldwide (1)	22.3		16		32.1		22
Worldwide, excluding U.S. and Canada (2)	8.7		6		3.8		3
Western Europe, excluding the U.K. and Ireland	7.6		5		9.3		6
Japan	5.6		4		7.7		5
U.K. and Ireland	5.3		4		5.4		4
Other	7.8		6		9.0		6
Total net earned premiums	$	138.9	100	%	$	146.4	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.

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The following tables present Montpelier’s net earned premiums, by line of business and reportable segment, during the six month periods ended June 30, 2013 and 2012:

Six Month Period Ended June 30, 2013	Montpelier Bermuda		Montpelier Syndicate 5151		Blue Capital		MUSIC Run-Off		Corporate and Other (1)			Total
Property Catastrophe - Treaty	$	121.2	$	1.6	$	9.3	$	—	$	0.8		$	132.9
Property Specialty - Treaty	23.1		3.1		—		—		(0.3		)	25.9
Other Specialty - Treaty	29.3		39.3		—		—		—			68.6
Property and Specialty Individual Risk	11.7		59.4		—		0.6		(0.5		)	71.2
Total net premiums earned	$	185.3	$	103.4	$	9.3	$	0.6	$	—		$	298.6

Six Month Period Ended June 30, 2012	Montpelier Bermuda		Montpelier Syndicate 5151		Blue Capital		MUSIC Run-Off		Corporate and Other (1)			Total
Property Catastrophe - Treaty	$	116.5	$	5.7	$	0.4	$	—	$	0.2		$	122.8
Property Specialty - Treaty	22.0		3.3		—		—		—			25.3
Other Specialty - Treaty	29.3		39.9		—		—		0.7			69.9
Property and Specialty Individual Risk	15.4		54.6		—		19.8		(0.9		)	88.9
Total net premiums earned	$	183.2	$	103.5	$	0.4	$	19.8	$	—		$	306.9

(1)Represents intercompany excess-of-loss reinsurance arrangements between Montpelier Bermuda and Montpelier Syndicate 5151 and between MUSIC Run-Off and Montpelier Syndicate 5151, each of which is eliminated in consolidation.

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

	Six Month Periods Ended June 30,
	2013				2012
U.S. and Canada	$	170.8	57	%	$	167.6	55	%
Worldwide (1)	52.1		17		69.7		23
Western Europe, excluding the U.K. and Ireland	16.6		6		16.3		5
Worldwide, excluding U.S. and Canada (2)	16.4		5		10.4		3
Japan	11.7		4		12.6		4
U.K. and Ireland	10.9		4		11.1		4
Other	20.1		7		19.2		6
Total net earned premiums	$	298.6	100	%	$	306.9	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.

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NOTE 9.  Basic and Diluted Earnings (Loss) Per Common Share

The Company applies the two-class method of calculating its earnings (loss) 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.

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For purposes of determining basic and diluted earnings (loss) per Common Share, a portion of net income is allocated to RSUs which serves to reduce the Company’s earnings per Common Share numerators. Net losses are not allocated to RSUs and, therefore, do not impact the Company’s per Common Share numerators in the event of a loss per Common Share. Recipients of outstanding RSUs are entitled to receive payments equivalent to dividends and distributions declared on Common Shares. Since outstanding RSUs represent phantom (as opposed to actual) Common Shares, such payments are recorded as general and administrative expenses.

The following table outlines the Company’s computation of its basic and diluted earnings (loss) per Common Share for the three and six month periods ended June 30, 2013 and 2012:

	Three Month Periods Ended June 30,						Six Month Periods Ended June 30,
	2013			2012			2013			2012
Earnings (loss) per Common Share numerator:
Net income (loss) available to the Company’s common shareholders	$	(27.3	)	$	62.1		$	64.8		$	169.2
Less: net earnings allocated to participating securities	—			(1.4		)	(1.3		)	(3.7		)
Net income (loss) available to the Company’s common shareholders	$	(27.3	)	$	60.7		$	63.5		$	165.5
Average Common Shares outstanding (in millions of shares)	52.1			57.3			53.3			58.7
Basic and diluted earnings (loss) per Common Share	$	(0.52	)	$	1.06		$	1.19		$	2.82

NOTE 10.  Commitments and Contingent Liabilities

Commitments

As of June 30, 2013, Montpelier had unfunded commitments to invest $1.9 million into two separate private investment funds.  As of December 31, 2012, Montpelier had unfunded commitments to invest $14.8 million into three separate private investment funds.

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.

Lloyd’s Central Fund (the “Central Fund”)

The Central Fund is available to satisfy claims if a member of Lloyd’s is unable to meet its obligations to policyholders.  The 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 2013 and 2012).  In addition, the Council of Lloyd’s has power to call on members to make an additional contribution to the 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 2013 obligation to the Central Fund will be approximately $1.1 million.

Lloyd’s also imposes other charges on its members and the syndicates on which they participate, including an

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annual subscription charge (0.5% of written premiums with respect to 2013 and 2012) 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 2013 obligation to Lloyd’s for such charges will be approximately $2.4 million.

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 are included within loss and loss adjustment expense reserves on its consolidated balance sheets.

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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 June 30, 2013.

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 available to the Company at June 30, 2013.

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.

Certain of Montpelier’s derivative instruments are subject to counterparty risk. Montpelier routinely monitors this risk.

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.

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.

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

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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

Montpelier Re and Blue Water Re are regulated by the Bermuda Monetary Authority (the “BMA”). Montpelier Re is subject to minimum capital requirements, which are established and monitored by the BMA.  Blue Water Re, as a special purpose insurance vehicle, is required to fully-collateralize its reinsurance obligations.

MUAL is regulated by the Prudential Regulation Authority (the “PRA”) and the Financial Conduct Authority (the “FCA”).  MUAL and MCL are also regulated by the Council of Lloyd’s. MUAL and MCL are subject to minimum capital requirements, which are established and monitored by Lloyd’s.

MUI and MEAG are approved by Lloyd’s as Coverholders for Syndicate 5151 and MEAG is registered with the Swiss Financial Market Supervisory Authority (“FINMA”).

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Bermuda

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, Montpelier Re is 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.

As of December 31, 2012, Montpelier Re’s Statutory Capital and Surplus was $1,820.8 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 $170.9 million at December 31, 2012. As of December 31, 2012, Montpelier Re’s restricted net assets (the amount of its Statutory Capital and Surplus that was not available to dividend to its parent without BMA approval) totaled $1,365.6 million.

For the year ended December 31, 2012, Montpelier Re’s Statutory Capital and Surplus of $1,820.8 million exceeded its 2012 BSCR of $667.0 million.  Montpelier Re’s 2012, statutory net income was $281.6 million.

Where an insurer or reinsurer believes that its own internal model for measuring risk and determining appropriate levels of capital better reflects the inherent risk of its business, beginning in 2013, it may apply to the BMA for approval to use its internal capital model in substitution for the BSCR model. The BMA may approve an insurer’s or reinsurer’s internal model, provided certain conditions have been established, and may revoke approval of an internal model in the event that the conditions are no longer met or where it feels that the revocation is appropriate. The BMA will review the internal model regularly to confirm that the model continues to meet the conditions.

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.  Additionally, the declaration of any return of capital distributions in any year that would result in a reduction of the prior year-end balance of statutory capital (defined as an insurer’s Statutory Capital and Surplus less its statutory earnings retained) by more than 15% also requires the approval of the BMA.  With respect to the year ended December 31, 2013, Montpelier Re has the ability to dividend up to $455.2 million without BMA approval.  For the six month period ending June 30, 2013, no dividends have been declared and paid by Montpelier Re.  With respect to the year ended December 31, 2012, Montpelier Re had the ability to dividend up to $410.0 million without BMA approval.  During 2012, $75.0 million of dividends were actually declared and paid by Montpelier Re.

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The Insurance Act contains provisions regarding group supervision, the authority to exclude specified entities from group supervision, the power for the BMA to withdraw as group supervisor, the functions of the BMA as group supervisor and the power of the BMA to make rules regarding group supervision.  The BMA formally serves as  Montpelier’s group supervisor.

The BMA has issued the Insurance (Group Supervision) Rules 2011 (the “Group Supervision Rules”) and the Insurance (Prudential Standards) (Insurance Group Solvency Requirement) Rules 2011 (the “Group Solvency Rules”) each effective December 31, 2011. The Group Supervision Rules set out the rules in respect of the assessment of the financial situation and solvency of an insurance group, the system of governance and risk management of the insurance group; and supervisory reporting and disclosures of the insurance group.  The Group Solvency Rules set out the rules in respect of the capital and solvency return and enhanced capital requirements for an insurance group.

The Bermuda Companies Act 1981 also limits the Company’s and Montpelier Re’s ability to pay dividends and distributions to its shareholders. Neither the Company nor Montpelier Re is permitted to declare or pay a dividend, or make a distribution out of 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.

Blue Water Re is registered as a Special Purpose Insurer with the BMA, meaning that its insurance and reinsurance contracts must be fully-collateralized, the parties to the transactions must be sophisticated and it is required to notify the BMA of each reinsurance contract it writes. Special Purpose Insurers benefit from an expedited application process, less regulatory stringency and minimal capital and surplus requirements.

Blue Water Re fully collateralizes its reinsurance obligations through cash and cash equivalents held in the Blue Water Trusts, which have been established for the benefit of ceding companies.  As a result, Blue Water Re had no restricted net assets other than those associated with its collateral requirements. As of June 30, 2013 and December 31, 2012, the fair value of all assets held in the Blue Water Trusts was $165.6 million and $22.5 million, which met the minimum values required on those dates.

Blue Water Re is also required to notify the BMA of each reinsurance contract it writes.

United Kingdom

Montpelier participates in the Lloyd’s market through Syndicate 5151, which is managed by MUAL and is capitalized through MCL.  MUAL is regulated by the PRA and the FCA.

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 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 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

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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 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.

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 will, when relevant, coordinate with each other and Lloyd’s over its use of enforcement powers.

MUAL, as a Lloyd’s Managing Agent, is subject to capital requirements and minimum solvency tests established by Lloyd’s.  MUAL’s statutory net assets, as reported to Lloyd’s as of December 31, 2012, totaled $1.3 million.  MUAL’s restricted net assets (the amount of its statutory net assets that were not available to dividend or distribute to its parent without Lloyds’ approval) at December 31, 2012 totaled $0.9 million.  Any amount of MUAL’s statutory net assets in excess of its net restricted assets may be distributed to its parent without Lloyds’ approval.

MCL, Syndicate 5151’s sole 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 2013 is £180 million.

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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 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 2012 underwriting year of account, MUAL carried out a syndicate Individual Capital Assessment (“ICA”) according to detailed rules prescribed by the FSA under the Individual Capital Adequacy Standards (“ICAS”) regime in force under Solvency I. In the case of Syndicate 5151’s 2013 underwriting year of account, MUAL also carried out a Solvency Capital Requirement (“SCR”) assessment in addition to the ICA, utilizing the Syndicate’s own Lloyd’s approved 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 risk, operational risk, market risk, credit risk, liquidity risk and group risk, and assess the amount of capital that syndicate members should hold against those risks. As a result of the delay in the implementation of Solvency II, an interim capital resources regime based on a combination of the ICA and SCR assessments known colloquially as “ICAS Plus” is to be applied by the FSA and its successor bodies. Effectively, the ICAS requirements will be satisfied through the use of the approved internal model to generate an SCR utilizing Solvency II principles.

Lloyd’s reviews each syndicate’s ICA or 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 ICA or 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 $149.6 million at December 31, 2012, which include 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 Lloyds’ approval) of $149.3 million at that 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.

MCL’s net income, as reported to Lloyd’s for the year ended December 31, 2012, was $26.8 million.

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 June 30, 2013, Syndicate 5151 held $279.7 million in investment securities (including accrued interest) and $55.5 million in cash and cash equivalents (including restricted cash), within the Premiums Trust Funds.  As of December 31, 2012, Syndicate 5151 held $269.3 million in investment securities (including accrued interest) and $102.6 million in cash and cash equivalents (including restricted cash), within the Premiums Trust Funds.

Switzerland

MEAG is subject to registration and supervision by FINMA as an insurance intermediary but is not subject to any minimum capital or solvency requirements.

NOTE 12.  Share-Based Compensation

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 officers, 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 its 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

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individual performance; and (iv) as remuneration to non-management members of the boards of directors of both the Company and MUAL. 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 June 30, 2013, the Company’s Variable RSUs outstanding consisted of those for the 2013 to 2016 cycle.  The number of Variable RSUs to be awarded for this cycle will be determined based on the Company’s actual 2013 increase in its FCBVPCS versus a target increase in FCBVPCS of 9.76% (“Target”).  If Target is achieved, the Company would expect to grant 536,761 Variable RSUs to participants.  At an increase in FCBVPCS of 2.76% or less (“Threshold”), the Company would not expect to grant any Variable RSUs to participants, and at an increase in FCBVPCS of 16.76% or more (“Maximum”), the Company would expect to grant 1,073,522 Variable RSUs to participants.

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The following table summarizes the Company’s RSU activity for the three and six month periods ended June 30, 2013 and 2012:

	Three Month Periods Ended June 30,
	2013					2012
	RSUsOutstanding		Unamortized  Grant Date  Fair Value			RSUs Outstanding		Unamortized Grant Date  Fair Value
Beginning of period	1,486,305		$	17.7		1,376,701		$	13.3
Fixed RSUs Awarded	29,000		0.7			24,000		0.5
Change in Variable RSUs projected for the 2013-2016 cycle	37,807		0.8			—		—
Change in Variable RSUs projected for the 2012-2015 cycle	—		—			238,929		4.0
RSU payments	(29,100	)	—			(43,100	)	—
RSU forfeitures	(3,250	)	—			(8,087	)	—
RSU expense recognized	—		(3.5		)	—		(3.5		)
End of period	1,520,762		$	15.7		1,588,443		$	14.3

	Six Month Periods Ended June 30,
	2013					2012
	RSUsOutstanding		Unamortized  Grant Date  Fair Value			RSUs Outstanding		Unamortized  Grant Date  Fair Value
Beginning of period	1,327,041		$	10.3		761,279		$	4.7
Fixed RSUs Awarded	29,000		0.7			32,000		0.6
Variable RSUs projected to be awarded for the 2013-2016 cycle	536,761		11.5			—		—
Variable RSUs projected to be awarded for the 2012-2015 cycle	—		—			908,034		15.1
RSU payments	(358,753	)	—			(56,100	)	—
RSU forfeitures	(13,287	)	—			(56,770	)	(0.8		)
RSU expense recognized	—		(6.8		)	—		(5.3		)
End of period	1,520,762		15.7			1,588,443		$	14.3

RSU Awards and Payments - three and six month periods ended June 30, 2013

On May 17, 2013, the Board approved a new service agreement with Christopher L. Harris, the Company’s President and Chief Executive Officer (the “Service Agreement”).  Pursuant to the Service Agreement, among other things, Mr. Harris agreed to a voluntary reduction in his annual base salary (and his cash bonus opportunity thereon)  from $900,000 to $750,000, in exchange for the additional Fixed and Variable RSU awards described below, each effective as of June 1, 2013.

During the second quarter of 2013, the Company awarded a total of 29,000 Fixed RSUs to its non-management directors and Mr. Harris.  Of the total Fixed RSUs awarded during that period, 18,000 RSUs represented annual one-year Fixed RSU awards to incumbent directors, 6,000 RSUs represented a one-time three-year Fixed RSU award to a newly-appointed director and 5,000 RSUs represented an annual one-year Fixed RSU award to Mr. Harris pursuant to the Service Agreement.

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On the basis of the Company’s forecasted increase in its FCBVPCS for 2013, the Company anticipated issuing 536,731 Variable RSUs for the 2013-2016 award cycle as of June 30, 2013, or 100% of the in force Target RSUs for that cycle at that time. During the second quarter of 2013, the Company awarded an additional 37,807 Variable RSUs (at Target) to its employees for the 2013-2016 award cycle, which included 34,931 Variable RSUs (at Target) awarded to Mr. Harris pursuant to the Service Agreement.

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During the three month period ended June 30, 2013, the Company paid out 29,100 vested RSUs and withheld, at the recipient’s election, 3,015 RSUs in satisfaction of statutory income tax liabilities.  As a result, the Company issued 26,085 Common Shares from its treasury.  See Note 7.  The fair value of the RSUs paid out during the second quarter of 2013 was $0.7 million.

During the six month period ended June 30, 2013, the Company paid out 358,753 vested RSUs and withheld, at the recipient’s election, 80,541 RSUs in satisfaction of statutory income tax liabilities.  As a result, the Company issued 278,212 Common Shares from its treasury.  See Note 7.  The fair value of the RSUs paid out during the first half of 2013 was $9.2 million.

None of the outstanding RSUs as of June 30, 2013 were vested.

RSU Awards and Payments - three and six month periods ended June 30, 2012

During the second quarter of 2012,  the Company awarded 24,000 Fixed RSUs to its non-management directors, of which 18,000 RSUs represented annual one-year Fixed RSU awards to incumbent directors and 6,000 RSUs represented a one-time three-year Fixed RSU award to a newly-appointed director.  During the first quarter of 2012, the Company awarded 8,000 five-year Fixed RSUs to employees.

On the basis of the Company’s forecasted increase in its FCBVPCS for 2012, the Company anticipated issuing 908,034 Variable RSUs for the 2012-2015 award cycle as of June 30, 2012, or 170% of the in force Target RSUs for that cycle at that time.

During the three month period ended June 30, 2012, the Company paid out 43,100 vested RSUs and withheld, at the recipient’s election, 5,007 RSUs in satisfaction of statutory income tax liabilities.  As a result, the Company issued 38,093 Common Shares from its treasury.  See Note 7.  The fair value of the RSUs paid out during the second quarter of 2012 was $0.9 million.

During the six month period ended June 30, 2012, the Company paid out 56,100 vested RSUs and withheld, at the recipient’s election, 8,538 RSUs in satisfaction of statutory income tax liabilities.  As a result, the Company issued 47,562 Common Shares from its treasury.  See Note 7.  The fair value of the RSUs paid out during the first half of 2012 was $1.1 million.

None of the outstanding RSUs as of June 30, 2012 were vested.

RSU Forfeitures, Forfeiture Assumptions and Other RSU Adjustments

For the periods presented, the Company assumed a zero to 6% forfeiture rate depending on the nature and term of individual awards and past and recent 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

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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 reduced the unamortized grant date fair value of its RSUs outstanding during the first half of 2012 by $0.8 million.  No reduction in the unamortized grant date fair value of its RSUs outstanding was required during the first half of 2013.

In connection with the planned retirement of Mr. Busher on December 31, 2013, the Company agreed to accelerate the vesting of certain of Mr. Busher’s RSU awards pursuant to a transition letter dated February 21, 2013. See Note 14. The acceleration of the vesting of Mr. Busher’s outstanding RSUs awards resulted in the Company recognizing an additional $0.3 million and $0.7 million of RSU expense in the three and six month periods ended June 30, 2013, respectively, which would have otherwise been recognized in future periods.

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The following table summarizes all RSUs outstanding and the unamortized grant date fair value of such RSUs at June 30, 2013 for each award cycle:

Award Date and Cycle	RSUs Outstanding	Unamortized Grant Date Fair Value
Four-year RSU awards granted in 2009	6,250	$	—
Five-year RSU awards granted in 2009	1,500	—
Four-year RSU awards granted in 2010	116,180	0.3
Three-year RSU awards granted in 2011	20,000	0.1
Five-year RSU awards granted in 2011	30,000	0.2
Three-year RSU awards granted in 2012	4,000	—
Four-year RSU awards granted in 2012	770,171	6.1
Five-year RSU awards granted in 2012	8,900	0.1
One-year RSU awards granted in 2013	21,000	0.5
Three-year RSU awards granted in 2013	6,000	0.1
Four-year RSU awards granted in 2013 (those awards in their Initial Award Period)	536,761	8.3
Total RSUs outstanding at June 30, 2013	1,520,762	$	15.7

The Company expects to incur future RSU expense associated with its currently outstanding RSUs of $6.9 million, $5.5 million, $2.6 million and $0.7 million during 2013, 2014, 2015 and 2016 & beyond, respectively.

NOTE 13.  Income Taxes

The Company is domiciled in Bermuda and has subsidiaries domiciled in several countries, including the U.S. The Company, Montpelier Re and Blue Water Re intend to conduct substantially all of their operations in Bermuda in a manner such that it is improbable that they would be viewed as being engaged in a trade or business in the U.S. However, because there is no definitive authority regarding activities that constitute being engaged in a trade or business in the U.S., there can be no assurance that the U.S. Internal Revenue Service will not contend, perhaps successfully, that the Company, Montpelier Re or Blue Water Re is engaged in a trade or business in the U.S. In that event, those entities would be subject to U.S. income tax, as well as a branch profits tax, on income that is treated as effectively connected with the conduct of that trade or business unless the corporation is entitled to relief under a tax treaty.

The Company’s U.S.-domiciled subsidiaries are subject to federal, state and local corporate income taxes and other taxes applicable to U.S. corporations. The provision for 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 also has subsidiaries domiciled in the U.K. and Switzerland which are subject to the respective income taxes in those jurisdictions.

During the three month periods ended June 30, 2013 and 2012, Montpelier recorded an income tax benefit of $0.4 million and zero million, respectively, and during the six month periods ended June 30, 2013 and 2012, Montpelier recorded an income tax benefit of $0.2 million and zero million, respectively.  During each of the periods presented, the movements in Montpelier’s income taxes were associated primarily with its U.K. operations.

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During the three and six month periods ended June 30, 2013, Montpelier paid $0.1 million in income taxes.  During the three and six month periods ended June 30, 2012, Montpelier paid less than $0.1 million in income taxes.

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 June 30, 2013 and 2012, these companies had pretax income (losses) of $(21.1) million and $63.8 million, respectively, and during the six month periods ended June 30, 2013 and 2012, these companies had pretax income of $63.0 million and $175.9 million, respectively.

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United Kingdom

MCL, MUAL, MUSL and their parent, Montpelier Holdings Limited, are subject to U.K. income taxes. During the three month periods ended June 30, 2013 and 2012, these companies had pretax income (losses) of $(2.5) million and $1.7 million, respectively, and during the six month periods ended June 30, 2013 and 2012, these companies had pretax income (losses) of $10.2 million and $(0.1) million, respectively.  Of these U.K. entities, only MCL remains in a cumulative net operating loss position.  Although net operating losses ordinarily give rise to deferred tax assets, due to the uncertainty at this time as to whether MCL will generate sufficient taxable income in future periods to utilize such assets, as of June 30, 2013 and December 31, 2012, Montpelier has established U.K. deferred tax asset valuation allowances of $1.0 million and $3.8 million, respectively, against its existing U.K. gross deferred tax assets of $1.5 million and $4.4 million, respectively.

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 (“Group Relief”).

During the three month period ending June 30, 2013, the entities within Montpelier’s U.K. group generated a net loss and, accordingly, Montpelier recorded an income tax benefit of $0.4 million.

During the six month period ending June 30, 2013, the entities within Montpelier’s U.K. group generated net pretax income which arose primarily from MCL.  MCL was able to fully utilize its cumulative net operating loss while the other companies within the Montpelier U.K. group (those other than MCL) recorded an income tax benefit of $0.2 million.

During the three month period ended June 30, 2012, the entities within Montpelier’s U.K. group generated net pretax income.  Nonetheless, MCL was able to utilize its cumulative net operating loss and the remaining companies were able to utilize Group Relief.  As a result, the Montpelier U.K. group did not incur an income tax provision during that period.

During the six month period ended June 30, 2012, the entities within Montpelier’s U.K. group generated a pretax loss. Group Relief and utilization of cumulative net operating losses resulted in the U.K. group not incurring an income tax provision or benefit during that period.

United States

MUI, MTR, BCAL 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 each of the three month periods ended June 30, 2013 and 2012, these companies had pretax income of zero million and during the six month periods ended June 30,

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2013 and 2012, these companies had pretax income of zero million and $0.1 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 $14.0 million at June 30, 2013 and December 31, 2012.

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 state and local income taxes. During the three and six month periods ended June 30, 2013 and 2012, such state and local income taxes totaled less than $0.1 million.

Switzerland

MEAG is subject to Swiss income taxes. During the three and six month periods ended June 30, 2013 and 2012, such income taxes totaled less than $0.1 million.

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NOTE 14.  Management Transition and Related Party Transaction

In February 2013 the Company announced the planned retirement of Mr. Busher on December 31, 2013.  Mr. Busher has served as Chief Operating Officer (“COO”) of the Company since its inception in 2001 and also serves as the Company’s Head of European Operations.  In order to promote a smooth transition of Mr. Busher’s current duties and responsibilities, the Company entered into a transition letter with him on February 21, 2013 pursuant to which he: (i) retired from the Board, effective May 17, 2013, the end of his existing term as a Class B director, (ii) will transition his executive roles with the Company during 2013, (iii) will retire as COO and Head of European Operations, effective December 31, 2013 (the date Mr. Busher’s service agreement expires), and (iv) will continue to serve as a director and the non-executive Chairman of the Board of Directors of MUAL.

Pursuant to the transition letter, Mr. Busher waived all rights to severance and other termination payments set forth in his service agreement, including any entitlement to payments upon expiration or non-renewal of his service agreement.  In consideration for Mr. Busher’s waiver of these and other rights under his service agreement, as well as his release of any claims against the Company and his continued compliance with the restrictive covenants contained in his service agreement, the Company agreed to the following treatment of his outstanding RSUs awards: (i) the RSUs that were originally granted to Mr. Busher pursuant to the 2010-2013 and 2012-2015 Variable RSU cycles, which were scheduled to vest on December 15, 2013, were vested fully on March 15, 2013; (ii) the RSUs that were originally granted to Mr. Busher as part of the 2012-2015 Variable RSU cycle, which are scheduled to vest on December 15, 2014 or later, will vest fully on December 15, 2013; and (iii) the RSUs that were granted to Mr. Busher as part of the 2013-2016 Variable RSU cycle, which are scheduled to vest on December 15, 2014 or later, will vest fully on March 15, 2014, subject to the achievement of performance goals for 2013 which were established at the time of grant.  See Note 12.

In connection with Mr. Busher’s planned retirement, on March 7, 2013 he sold 469,222 Common Shares to the Company in a private transaction.  The price paid to Mr. Busher was $24.62 per share, which was $0.63 less than the market price (as per the New York Stock Exchange) at the time the agreement was reached.

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 2022 Senior Notes, Trust Preferred Securities and other investments carried at net asset value.

At June 30, 2013 and December 31, 2012, the fair value of the 2022 Senior Notes (based on quoted market prices, which represent Level 2 inputs) was $293.1 million and $306.9 million, respectively, which compared to a carrying value of $299.1 million. See Note 5.

At June 30, 2013 and December 31, 2012, the fair value of the Trust Preferred Securities (based on quoted

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market prices for similar securities, which represent Level 2 inputs) was $89.5 million and $89.0 million, respectively, which compared to a carrying value of $100.0 million. See Note 5.

At June 30, 2013 and December 31, 2012, the fair value and net asset value of Montpelier’s other investments carried on the Company’s balance sheets were approximately the same. See Note 4.

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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 and six month periods ended June 30, 2013 and 2012, and our financial condition as of June 30, 2013 and December 31, 2012.  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 2012 Form 10-K, as filed with the SEC.

This discussion 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 2012 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.

Important events and uncertainties that could cause our actual results, future dividends on, or repurchases of, Common Shares or Preferred Shares to differ 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 process, which is 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, 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 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; and the impact of foreign currency and interest rate fluctuations.

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.

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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

Outlook and Trends

Pricing in most insurance and reinsurance markets is cyclical in nature.  During the first quarter of 2013 we saw improved pricing for marine and property coverages provided on both an individual risk and a treaty basis and, as a result, we increased our net premium writings in these lines of business, as compared to our writings in the first quarter of 2012.  These rate increases did not extend to our engineering, aerospace and specialty casualty classes of business and, as a result, we decreased our net premium writings within our Other Specialty - Treaty line of business, as compared to our writings in the first quarter of 2012.

Pricing on our April 1, 2013 Japan renewals, which relate primarily to quota-share business, was largely unchanged from the 2012 renewals.  We maintained similar exposures as those assumed in 2012 on a Japanese yen basis although, due to changes in foreign exchange rates, these exposures decreased on a U.S. dollar basis.

Pricing on our April through July 2013 property catastrophe renewals showed overall decreases of 12% for U.S. business and 3% for International business.  However, within our property specialty and individual risk segments, we showed increases of 5% and 2%, respectively, as a result of stronger original rates.

While market conditions are challenging, we remain well positioned to continue executing our focused underwriting and capital management strategy throughout the remainder of 2013.

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 vendor models and third-party protection such as purchases of outwards reinsurance and derivative instruments.

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.  The Board regularly reviews the outputs from this process, and we routinely seek to refine and improve our risk management process.

The following discussion should be read in conjunction with Item 1A “Risk Factors” included in the 2012 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.

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Our June 1, 2013 net reinsurance treaty limits by zone were as follows:

Net Reinsurance Treaty Limits by Zone (1)

	Treaty Limits		Percentage of June 30, 2013
	(Millions)		Shareholders’ Equity Available to the Company
U.S. Hurricane:
Mid-Atlantic hurricane	$	610	39	%
Northeast hurricane	475		30	%
Florida hurricane	468		30	%
Gulf hurricane	400		25	%
Hawaii hurricane	176		11	%
U.S. Earthquake:
New Madrid earthquake	$	529	34	%
Northwest earthquake	369		24	%
California earthquake	352		22	%
European Windstorm:
Western European windstorm	$	409	26	%
UK & Ireland windstorm	364		23	%
Scandinavia windstorm	128		8	%
Other Countries:
Japan earthquake	$	255	16	%
Australia cyclone	222		14	%
Australia earthquake	220		14	%
Canada earthquake	203		13	%
Turkey earthquake	181		12	%
New Zealand earthquake	123		8	%
Japan windstorm	116		7	%
Chile earthquake	105		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.

The treaty limits presented are shown net of any outward 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; and also include our portion of those exposures we have assumed through our investment in the BCGR Listed Fund.  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., excluding 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 June 1, 2013.  As of that date, Mid-Atlantic hurricane represents 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 outward reinsurance program.

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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 vendor 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 net impact figures presented also include the portion of those single event exposures we have assumed through our investment in the BCGR Listed Fund.

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, 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 June 1, 2013 for selected zones and perils at selected return period levels using AIR Worldwide Corporation’s CLASIC/2 model version 14.0, one of several 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.

As we utilize a combination of third-party models, CATM and underwriting judgement 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 June 30, 2013
	(Millions)				Shareholders’ Equity Available to the Company
	100-year		250-year		100-year		250-year
U.S. Hurricane	$	339	$	396	22	%	25	%
U.S. Earthquake	166		264		11	%	17	%
European Windstorm	203		250		13	%	16	%

(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.

As of June 1, 2013, our three largest modeled exposures to a single event loss at a 250-year return period were U.S. Hurricane, U.S. Earthquake and European Windstorm.

Our 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 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 June 1, 2013.  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, and changes in our outwards reinsurance and derivative protections.

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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.

Summary Financial Results

Three Month Periods Ended June 30, 2013 and 2012

We ended the second quarter of 2013 with a FCBVPCS of $27.03, a decrease of 1.3% for the quarter after taking into account dividends declared on Common Shares during the period.  The decrease in our FCBVPCS was primarily the result of net realized and unrealized investment losses, partially offset by strong underwriting results. Our comprehensive loss attributable to the Company for the second quarter of 2013 was $23.6 million and our GAAP combined ratio was 69.0%.

Our underwriting results for the second quarter of 2013 included $26.3 million of net catastrophe losses from flooding in Europe and Canada, and U.S. tornadoes.  These net losses were offset by $47.7 million in net prior year favorable loss reserve development. Our investment results for the second quarter of 2013 included $61.2 million of net realized and unrealized investment losses, which were comprised of $58.3 million in net losses from fixed maturity investments, $2.3 million in net losses from equity securities and $0.6 million in net losses from other investments.

We ended the second quarter of 2012 with a FCBVPCS of $25.36, an increase of 4.8% 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.  Our comprehensive income available to the Company for the second quarter of 2012 was $63.9 million and our GAAP combined ratio was 76.5%.

Our underwriting results for the second quarter of 2012 contained no significant catastrophe losses and benefitted from $16.7 million in net prior year favorable loss reserve development. Our investment results for the second quarter of 2012 included $13.3 million of net realized and unrealized investment gains which were comprised of $13.1 million in net gains from fixed maturity investments, $0.2 million in net losses from equity securities and $0.4 million in net gains from other investments.

Six Month Periods Ended June 30, 2013 and 2012

We experienced an increase in FCBVPCS of 4.3% during the first half of 2013 after taking into account dividends declared on Common Shares during the period.  The increase in our FCBVPCS was primarily the result of strong underwriting results, partially offset by net realized and unrealized investment losses.  Our comprehensive income available to the Company for the first half of 2013 was $68.3 million and our GAAP combined ratio was 65.5%.

Our underwriting results for the first half of 2013 contained no significant catastrophe losses other than the second quarter losses noted above, and benefitted from $66.1 million in net prior year favorable loss reserve development.  Our investment results for the first half of 2013 included $61.9 million of net realized and unrealized investment losses which were comprised of $61.4 million in net losses from fixed maturity investments, $1.2 million in net losses from equity securities and $0.7 million in net gains from other investments.

We experienced an increase in FCBVPCS of 12.6% during the first half of 2012 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.  Our comprehensive income for the first half of 2012 was $174.7 million and our GAAP combined ratio was 67.2%.

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Our underwriting results for the first half of 2012 contained no significant catastrophe losses and benefitted from $45.4 million in net prior year favorable loss reserve development.  Our investment results for the first half of 2012 included $45.7 million of net realized and unrealized investment gains which were comprised of $35.6 million in net gains from fixed maturity investments, $7.0 million in net gains from equity securities and $3.1 million in net gains from other investments.

Book Value Per Common Share

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

	June 30, 2013			March 31, 2013			Dec. 31, 2012			June 30, 2012
Book value numerators (in millions):
Shareholders’ Equity available to the Company	$	1,570.0		$	1,676.3		$	1,629.4		$	1,624.7
Less: Preferred Shareholders’ Equity	(150.0		)	(150.0		)	(150.0		)	(150.0		)
[A] Common Shareholders’ Equity available to the Company	1,420.0			1,526.3			1,479.4			1,474.7
Book value denominators (in thousands):
[B] Common Shares outstanding	51,020			54,028			55,270			56,562
RSUs outstanding	1,521			1,486			1,327			1,588
[C] Common Shares and RSUs outstanding	52,541			55,514			56,597			58,150
BVPCS [A] / [B]	$	27.83		$	28.25		$	26.77		$	26.07
FCBVPCS [A] / [C]	27.03			27.49			26.14			25.36
Increase (decrease) in FCBVPCS: (1)
From March 31, 2013	(1.3		)%
From December 31, 2012	4.3		%
From June 30, 2012	8.4		%

(1)Computed as the change in our FCBVPCS after taking into account dividends declared on Common Shares of $0.115, $0.230 and $0.450 during the three, six and twelve month periods ended June 30, 2013, respectively.

Our computations of FCBVPCS and the increase or decrease 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 or decrease 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. 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 or decrease in our FCBVPCS in our quarterly earnings releases and our annual and quarterly filings with the SEC.

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Consolidated Results of Operations

Our consolidated financial results for the three and six month periods ended June 30, 2013 and 2012 were as follows:

	Three Month Periods Ended June 30,						Six Month PeriodsEnded June 30,
($ in millions)	2013			2012			2013			2012
Gross insurance and reinsurance premiums written	$	242.7		$	253.5		$	503.9		$	513.2
Ceded reinsurance premiums	(44.9		)	(42.7		)	(80.1		)	(82.4		)
Net insurance and reinsurance premiums written	197.8			210.8			423.8			430.8
Change in net unearned insurance and reinsurance premiums	(58.9		)	(64.4		)	(125.2		)	(123.9		)
Net insurance and reinsurance premiums earned	138.9			146.4			298.6			306.9
Net investment income	16.7			17.2			33.1			34.8
Net realized and unrealized investment gains (losses)	(61.2		)	13.3			(61.9		)	45.7
Net foreign exchange gains (losses)	(5.3		)	2.9			15.8			0.3
Net income (loss) from derivative instruments	(12.2		)	2.1			(7.6		)	3.6
Other revenue	—			0.2			—			0.7
Total revenues	76.9			182.1			278.0			392.0
Underwriting expenses:
Loss and LAE — current year losses	94.5			73.9			163.5			146.6
Loss and LAE — prior year losses	(47.7		)	(16.7		)	(66.1		)	(45.4		)
Insurance and reinsurance acquisition costs	22.6			23.6			44.7			48.4
General and administrative expenses	26.4			31.0			53.3			56.7
Non-underwriting expenses:
Interest and other financing expenses	4.7			4.8			9.4			9.8
Total expenses	100.5			116.6			204.8			216.1
Income (loss) before income taxes	(23.6		)	65.5			73.2			175.9
Income tax benefit	0.4			—			0.2			—
Net income (loss)	(23.2		)	65.5			73.4			175.9
Net income (loss) attributable to non-controlling interest	(0.7		)	—			(1.9		)	—
Net income (loss) available to the Company	(23.9		)	65.5			71.5			175.9
Dividends declared on Preferred Shares	(3.4		)	(3.4		)	(6.7		)	(6.7		)
Net income (loss) available to the Company’s common shareholders	$	(27.3	)	$	62.1		$	64.8		$	169.2
Net income (loss)	$	(23.2	)	$	65.5		$	73.4		$	175.9
Net change in foreign currency translation	0.3			(1.6		)	(3.2		)	(1.2		)
Comprehensive income (loss)	(22.9		)	63.9			70.2			174.7
Net income (loss) attributable to non-controlling interest	(0.7		)	—			(1.9		)	—
Comprehensive income (loss) to the Company’s common shareholders	$	(23.6	)	$	63.9		$	68.3		$	174.7
Loss and LAE ratio	33.7		%	39.2		%	32.6		%	32.9		%
Acquisition cost ratio	16.3		%	16.1		%	15.0		%	15.8		%
General and administrative expense ratio	19.0		%	21.2		%	17.9		%	18.5		%
GAAP combined ratio	69.0		%	76.5		%	65.5		%	67.2		%

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I. Review of Underwriting Results - by Segment

We currently operate through four reportable segments: Montpelier Bermuda, Montpelier Syndicate 5151, Blue Capital and MUSIC Run-Off.  Each of our segments represents a separate underwriting platform through which we write, or formerly wrote, insurance and reinsurance business.  Our segment disclosures provided herein present the operations of each segment prior to the effects of intercompany quota share reinsurance agreements among them.

The activities of the Company, certain of its intermediate holding and service companies 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 and six month periods ended June 30, 2013 and 2012 were as follows:

	Three Month Periods Ended June 30,						Six Month Periods Ended June 30,
($ in millions)	2013			2012			2013			2012
Gross premiums written	$	160.6		$	186.9		$	336.5		$	367.6
Ceded reinsurance premiums	(32.3		)	(40.5		)	(58.2		)	(67.1		)
Net premiums written	128.3			146.4			278.3			300.5
Change in net unearned premiums	(44.2		)	(61.5		)	(93.0		)	(117.3		)
Net premiums earned	84.1			84.9			185.3			183.2
Loss and LAE - current year losses	(52.6		)	(33.1		)	(85.9		)	(62.4		)
Loss and LAE - prior year losses	33.7			13.6			59.7			26.7
Acquisition costs	(10.0		)	(8.9		)	(18.8		)	(21.1		)
General and administrative expenses	(8.6		)	(11.0		)	(17.8		)	(20.9		)
Underwriting income	$	46.6		$	45.5		$	122.5		$	105.5
Loss and LAE ratio	22.4		%	23.0		%	14.2		%	19.4		%
Acquisition cost ratio	11.9		%	10.5		%	10.1		%	11.5		%
General and administrative expense ratio	10.3		%	13.0		%	9.6		%	11.5		%
GAAP combined ratio	44.6		%	46.5		%	33.9		%	42.4		%

Gross and Net Premiums Written

The following tables summarizes Montpelier Bermuda’s premium writings, by line of business, for the three and six month periods ended June 30, 2013 and 2012:

	Three Month Periods Ended June 30,
($ in millions)	2013					2012
Property Catastrophe - Treaty	$	120.0		75	%	$	148.0		79	%
Property Specialty - Treaty	12.0			7		12.3			7
Other Specialty - Treaty	16.2			10		11.7			6
Property and Specialty Individual Risk	12.4			8		14.9			8
Gross premiums written	160.6			100	%	186.9			100	%
Ceded reinsurance premiums	(32.3		)			(40.5		)
Net premiums written	$	128.3				$	146.4

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	Six Month Periods Ended June 30,
($ in millions)	2013					2012
Property Catastrophe - Treaty	$	243.2		72	%	$	275.7		75	%
Property Specialty - Treaty	24.0			7		23.5			7
Other Specialty - Treaty	46.9			14		45.2			12
Property and Specialty Individual Risk	22.4			7		23.2			6
Gross premiums written	336.5			100	%	367.6			100	%
Ceded reinsurance premiums	(58.2		)			(67.1		)
Net premiums written	$	278.3				$	300.5

Gross premiums written within Montpelier Bermuda during the second quarter of 2013 totaled $160.6 million, a decrease of $26.3 million, or 14%, as compared to the second quarter of 2012.  The largest decrease was within the Property Catastrophe -Treaty line of business, where pricing deterioration led to reduced premium on renewals as well as the non-renewal of certain contracts.

Gross premiums written within Montpelier Bermuda during the first half of 2013 totaled $336.5 million, a decrease of $31.1 million, or 8%, as compared to the first half of 2012.  A reduction in retrocessional premiums assumed during the first quarter of 2013, as compared to the first quarter of 2012, along with the pricing deterioration noted above, were the primary reasons for the decrease.

Gross and net premiums written during the periods presented include amounts assumed from Montpelier Syndicate 5151 as part of an intercompany excess-of-loss reinsurance agreement.  See “Corporate and Other” under this Item 2.

Net premiums written and earned by Montpelier Bermuda during the second quarters of 2013 and 2012 included increases (decreases) due to reinstatements of $(0.8) million and $1.1 million, respectively, and adjustment premiums of $(4.3) million and $(4.5) million, respectively, associated with Montpelier Bermuda’s medical malpractice class of business.  Net premiums written and earned by Montpelier Bermuda during the first six months of 2013 and 2012 included increases due to reinstatements of $1.4 million and $2.8 million, respectively, as well as the fluctuations in adjustment premiums previously mentioned.

Reinsurance premiums ceded by Montpelier Bermuda during the second quarters of 2013 and 2012 were $32.3 million and $40.5 million, respectively, and $58.2 million and $67.1 million during the first six months of 2013 and 2012, respectively. The decreases in Montpelier Bermuda’s reinsurance premiums ceded during the 2013 periods, versus those of the 2012 periods, are primarily the result of decreases experienced within its gross Property-Catastrophe writings.

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 during the three and six month periods ended June 30, 2013 were $84.1 million and $185.3 million, respectively, versus $84.9 million and $183.2 million for the three and six month periods ended June 30, 2012, 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 Bermuda’s loss and LAE reserve movements for the three and six month periods ended June 30, 2013 and 2012:

	Three Month Periods Ended June 30,						Six Month Periods Ended June 30,
(Millions)	2013			2012			2013			2012
Gross unpaid loss and LAE reserves - beginning	$	679.6		$	674.7		$	728.2		$	716.9
Reinsurance recoverable on unpaid losses - beginning	(76.6		)	(55.6		)	(87.7		)	(61.0		)
Net unpaid loss and LAE reserves - beginning	603.0			619.1			640.5			655.9
Losses and LAE incurred:
Current year losses	52.6			33.1			85.9			62.4
Prior year losses	(33.7		)	(13.6		)	(59.7		)	(26.7		)
Total losses and LAE incurred	18.9			19.5			26.2			35.7
Losses and LAE paid and approved for payment	(44.9		)	(42.7		)	(89.7		)	(95.7		)
Net unpaid loss and LAE reserves - ending	577.0			595.9			577.0			595.9
Reinsurance recoverable on unpaid losses - ending	63.1			62.8			63.1			62.8
Gross unpaid loss and LAE reserves - ending	$	640.1		$	658.7		$	640.1		$	658.7

The following table summarizes Montpelier Bermuda’s net loss and LAE ratios for the three and six month periods ended June 30, 2013 and 2012:

	Three Month Periods Ended June 30,				Six Month Periods Ended June 30,
	2013		2012		2013		2012
Loss and LAE ratio - current year	62.5	%	39.0	%	46.4	%	34.0	%
Loss and LAE ratio - prior year	(40.1	)%	(16.0	)%	(32.2	)%	(14.6	)%
Loss and LAE ratio	22.4	%	23.0	%	14.2	%	19.4	%

Three month periods ended June 30, 2013 and 2012

Current Year Loss and LAE Events

During the second quarters of 2013 and 2012, Montpelier Bermuda experienced $52.6 million and $33.1 million in current year net losses and LAE incurred, respectively.  Montpelier Bermuda’s underwriting results for the second quarter of 2013 included $22.7 million of net catastrophe losses from flooding in Europe and Canada, and U.S. tornadoes.  There were no individually significant known loss events impacting Montpelier Bermuda during the second quarter of 2012.

Prior Year Loss and LAE Development

During the second quarter of 2013, Montpelier Bermuda experienced $33.7 million in net favorable development on prior year loss and LAE reserves, which included loss reserve movements associated with:

·IBNR reductions associated with its medical malpractice class of business ($7.1 million decrease),

·2012 Hurricane Sandy ($4.3 million decrease),

·The commutation/settlement of four prior year contracts ($3.0 million decrease), and

·2011 Japan earthquake ($2.8 million decrease).

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In addition to the foregoing, claims reported to Montpelier Bermuda during the second quarter of 2013 indicated that IBNR for natural catastrophe losses it initially recorded during 2012 (excluding Hurricane Sandy) exceeded the extent of losses that actually occurred, and consequently Montpelier Bermuda decreased its loss and LAE reserves by a further $5.6 million.

During the second quarter of 2012 Montpelier Bermuda experienced $13.6 million in net favorable development on prior year loss and LAE reserves, which included loss reserve movements associated with:

·IBNR reductions within the Other Specialty - Treaty line of business ($11.5 million decrease, $5.0 million of which related specifically to its medical malpractice class of business),

·An individual risk loss incurred during 2008 ($5.1 million increase), and

·Known 2011 and 2010 catastrophe events ($2.4 million decrease).

The remaining favorable development on prior year loss and LAE reserves recognized during the second quarters of 2013 and 2012 related to small adjustments made across multiple short-tail 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 benefitted from $5.0 million in foreign currency transaction gains during the three month period ended June 30, 2013.  Montpelier Bermuda’s prior year losses and LAE incurred were not significantly impacted by foreign currency movements during the three month period ended June 30, 2012.

Since 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 reported underwriting results and its underwriting ratios.

Six month periods ended June 30, 2013 and 2012

Current Year Loss and LAE Events

During the six month periods ended June 30, 2013 and 2012, Montpelier Bermuda experienced $85.9 million and $62.4 million in current year net losses and LAE incurred, respectively.  There were no individually significant known loss events impacting Montpelier Bermuda during these periods other than those noted above relating to the second quarter of 2013.

Prior Year Loss and LAE Development

During the first half of 2013, Montpelier Bermuda experienced $59.7 million in net favorable development on prior year loss and LAE reserves.  In addition to the items noted above, the favorable development recognized during the six month period ended June 30, 2013 also included the following events and factors recognized during the first quarter of 2013:

·A settlement associated with the 2010 Deepwater Horizon oil rig explosion and fire ($5.0 million decrease),

·2011 Japanese earthquake ($3.6 million decrease),

·2011 fire at a Texas fuel storage facility ($2.6 million increase),

·2007 fire at a Chilean power plant ($2.5 million increase),

·2005 Hurricanes ($1.9 million decrease), and

·2011 Georgia weather events ($1.6 million decrease).

In addition to the foregoing, claims reported to Montpelier Bermuda during the first quarter of 2013 indicated that IBNR for natural catastrophe losses it initially recorded during 2012 exceeded the extent of losses that actually occurred, and consequently Montpelier Bermuda decreased its loss and LAE reserves by a further $13.0  million during the first quarter of 2013.

During the first half of 2012, Montpelier Bermuda experienced $26.7 million in net favorable development on prior year loss and LAE reserves. In addition to the items noted above, the favorable development recognized during the first half of 2012 also included the following events and factors recognized during the first quarter of 2012:

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·2011 Japan earthquake ($6.3 million decrease),

·2011 Danish cloudburst ($3.9 million increase),

·Three fire losses occurring during 2011 and 2010 ($3.9 million decrease), and

·February 2011 New Zealand earthquake ($2.3 million increase).

In addition to the foregoing, claims reported to Montpelier Bermuda in 2012 indicated that the non-catastrophe property and casualty IBNR it initially recorded during 2011 and 2010 exceeded the extent of losses that actually occurred, and consequently Montpelier Bermuda decreased its loss and LAE reserves by a further $4.1 million during the first quarter of 2012.

The majority of Montpelier Bermuda’s remaining 2013 and 2012 current year loss and LAE related to claims and events that had been incurred during those periods, but had not yet been reported to us.

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

Montpelier Bermuda’s prior year losses and LAE incurred benefitted from $6.9 million in foreign currency transaction gains during the six month period ended June 30, 2013.  Montpelier Bermuda’s prior year losses and LAE incurred were not significantly impacted by foreign currency movements during the six month period ended June 30, 2012.

Underwriting Expenses

The following table summarizes Montpelier Bermuda’s underwriting expenses for the three and six month periods ended June 30, 2013 and 2012:

	Three Month Periods Ended June 30,						Six Month Periods Ended June 30,
($ in millions)	2013			2012			2013			2012
Acquisition costs	$	10.0		$	8.9		$	18.8		$	21.1
Acquisition cost ratio	11.9		%	10.5		%	10.1		%	11.5		%
General and administrative expenses	$	8.6		$	11.0		$	17.8		$	20.9
General and administrative expense ratio	10.3		%	13.0		%	9.6		%	11.5		%

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 favorable loss experience, 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 reinsurance contracts contain profit commission clauses and the terms of any profit commissions are specific to the individual contracts and vary as a percentage of the contract results.

Montpelier Bermuda recorded net profit commission benefits of $0.4 million and $1.0 million during the three months ended June 30, 2013 and 2012, respectively, and $2.8 million and $2.6 million during the six months ended June 30, 2013 and 2012, respectively.

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 the commission expenses incurred on assumed business and 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 costs and acquisition cost ratios for the second quarter of 2013 increased, as compared to those of the 2012 period, primarily as a result of a decrease in the acquisition costs earned on premiums ceded.  Montpelier Bermuda’s acquisition costs and acquisition cost ratio for the six month period ended June 30, 2013 decreased, as compared to the first six months of 2012, primarily as a result of an increase in acquisition costs earned on premiums ceded during the first quarter of 2013.

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The following table summarizes Montpelier Bermuda’s general and administrative expenses during the three and six month periods ended June 30, 2013 and 2012:

	Three Month Periods Ended				Six Month Periods Ended
	June 30,				June 30,
(Millions)	2013		2012		2013		2012
Operating expenses	$	6.7	$	7.3	$	13.9	$	15.4
Incentive compensation expenses	1.9		3.7		3.9		5.5
General and administrative expenses	$	8.6	$	11.0	$	17.8	$	20.9

Montpelier Bermuda’s operating expenses incurred during the 2013 periods presented decreased versus those of the comparable 2012 periods, primarily as a result of the re-allocation of the Company’s risk management expenses from Montpelier Bermuda to Corporate and Other.  This re-allocation was made in response to an increase in the Company’s group-wide risk management activities, including Solvency II and related initiatives.

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 2013 periods presented decreased versus those of the comparable 2012 periods, primarily as a result of its 2013 accruals being provided at a lower projected payout level than that of the prior year.

MONTPELIER SYNDICATE 5151

Underwriting results for Montpelier Syndicate 5151 for the three and six month periods ended June 30, 2013 and 2012 were as follows:

	Three Month Periods Ended June 30,						Six Month Periods Ended June 30,
($ in millions)	2013			2012			2013			2012
Gross premiums written	$	58.9		$	63.4		$	128.7		$	138.1
Ceded reinsurance premiums	(9.3		)	(1.6		)	(18.0		)	(11.7		)
Net premiums written	49.6			61.8			110.7			126.4
Change in net unearned premiums	(0.6		)	(9.1		)	(7.3		)	(22.9		)
Net premiums earned	49.0			52.7			103.4			103.5
Loss and LAE - current year losses	(39.9		)	(35.2		)	(75.6		)	(70.1		)
Loss and LAE - prior year losses	14.5			3.0			7.1			18.3
Acquisition costs	(11.9		)	(11.8		)	(24.8		)	(20.4		)
General and administrative expenses	(7.9		)	(11.2		)	(16.2		)	(19.8		)
Underwriting income (loss)	$	3.8		$	(2.5	)	$	(6.1	)	$	11.5
Loss and LAE ratio	51.8		%	61.1		%	66.2		%	49.9		%
Acquisition cost ratio	24.3		%	22.4		%	24.0		%	19.7		%
General and administrative expense ratio	16.2		%	21.2		%	15.7		%	19.3		%
GAAP combined ratio	92.3		%	104.7		%	105.9		%	88.9		%

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Gross and Net Premiums Written

The following tables summarize Montpelier Syndicate 5151’s premium writings, by line of business, for the three and six month periods ended June 30, 2013 and 2012:

	Three Month Periods Ended June 30,
($ in millions)	2013					2012
Property Catastrophe - Treaty	$	0.9		1	%	$	0.9		1	%
Property Specialty - Treaty	0.4			1		0.5			1
Other Specialty - Treaty	15.4			26		22.9			36
Property and Specialty Individual Risk	42.2			72		39.1			62
Gross premiums written	58.9			100	%	63.4			100	%
Reinsurance premiums ceded	(9.3		)			(1.6		)
Net premiums written	$	49.6				$	61.8

	Six Month Periods Ended June 30,
($ in millions)	2013					2012
Property Catastrophe - Treaty	$	4.2		3	%	$	9.0		7	%
Property Specialty - Treaty	3.0			2		2.8			2
Other Specialty - Treaty	35.3			28		46.2			33
Property and Specialty Individual Risk	86.2			67		80.1			58
Gross premiums written	128.7			100	%	138.1			100	%
Reinsurance premiums ceded	(18.0		)			(11.7		)
Net premiums written	$	110.7				$	126.4

Gross premiums written within Montpelier Syndicate 5151 during the second quarter of 2013 totaled $58.9 million, a decrease of $4.5 million, or 7%, as compared to the second quarter of 2012.  Gross premiums written during the first half of 2013 totaled $128.7 million, a decrease of $9.4 million, or 7%, as compared to the first half of 2012.  The largest decrease was within the Other Specialty - Treaty line of business, resulting from rate decreases and reductions in our net exposures, mainly within our casualty and engineering pro-rata book of business.

Reinsurance premiums ceded during the periods presented include amounts ceded as part of intercompany excess-of loss reinsurance agreements.  See “Corporate and Other” under this Item 2.

Net premiums written and earned by Montpelier Syndicate 5151 during the three and six month periods ended June 30, 2013, included reductions in net reinstatement premiums written of $3.3 million and $3.1 million, respectively.  Net premiums written and earned by Montpelier Syndicate 5151 during the 2012 periods were not significantly impacted by reinstatement premiums.

Reinsurance premiums ceded by Montpelier Syndicate 5151 during the second quarter of 2013 and 2012 were $9.3 million and $1.6 million, respectively, and $18.0 million and $11.7 million during the first six months of 2013 and 2012, respectively.  The increases in Montpelier Syndicate 5151’s reinsurance premiums ceded during the 2013 periods, versus those of the 2012 periods, resulted from higher ceded reinstatements and increases experienced within its gross Property and Specialty Individual Risk writings.

Montpelier Syndicate 5151 purchases reinsurance in the normal course of its business in order to manage its exposures.  The amount and type of reinsurance that Montpelier Syndicate 5151 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 Syndicate 5151’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.

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All of Montpelier Syndicate 5151’s reinsurance purchases to date have represented prospective cover; that is, reinsurance has been purchased to protect Montpelier Syndicate 5151 against the risk of future losses as opposed to covering losses that have already occurred but have not been paid.  Montpelier Syndicate 5151 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 Syndicate 5151 were $49.0 million and $52.7 million during the three month periods ended June 30, 2013 and 2012, respectively, and $103.4 million and $103.5 million during the six month periods ended June 30, 2013 and 2012, 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 Syndicate 5151’s loss and LAE reserve movements for the three and six month periods ended June 30, 2013 and 2012:

	Three Month Periods Ended June 30,						Six Month Periods Ended June 30,
($ in millions)	2013			2012			2013			2012
Gross unpaid loss and LAE reserves - beginning	$	326.0		$	335.6		$	354.0		$	341.6
Reinsurance recoverable on unpaid losses - beginning	(20.8		)	(32.5		)	(28.3		)	(36.4		)
Net unpaid loss and LAE reserves - beginning	305.2			303.1			325.7			305.2
Losses and LAE incurred:
Current year losses	39.9			35.2			75.6			70.1
Prior year losses	(14.5		)	(3.0		)	(7.1		)	(18.3		)
Total losses and LAE incurred	25.4			32.2			68.5			51.8
Net foreign currency translation movements on loss and LAE reserves	1.4			(8.8		)	(21.3		)	(1.2		)
Losses and LAE paid and approved for payment	(24.7		)	(15.7		)	(65.6		)	(45.0		)
Net unpaid loss and LAE reserves - ending	307.3			310.8			307.3			310.8
Reinsurance recoverable on unpaid losses - ending (1)	27.5			30.3			27.5			30.3
Gross unpaid loss and LAE reserves - ending (1)	$	334.8		$	341.1		$	334.8		$	341.1

(1)Montpelier Syndicate 5151’s ending reinsurance recoverable at June 30, 2013 and December 31, 2012, includes a recoverable from Montpelier Bermuda pursuant to an intercompany reinsurance contract of $10.3 million and $13.3 million, respectively.  The effects of these intercompany reinsurance contracts are eliminated in consolidation.

The following table summarizes Montpelier Syndicate 5151’s net loss and LAE ratios for the three and six month periods ended June 30, 2013 and 2012:

	Three Month Periods Ended June 30,				Six Month Periods Ended June 30,
	2013		2012		2013		2012
Loss and LAE ratio - current year	81.4	%	66.8	%	73.1	%	67.6	%
Loss and LAE ratio - prior year	(29.6	)%	(5.7	)%	(6.9	)%	(17.7	)%
Loss and LAE ratio	51.8	%	61.1	%	66.2	%	49.9	%

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Three month periods ended June 30, 2013 and 2012

Current Year Loss and LAE Events

During the second quarters of 2013 and 2012, Montpelier Syndicate 5151 experienced $39.9 million and $35.2 million in current year net losses and LAE incurred, respectively.  Montpelier Syndicate 5151’s underwriting results for the second quarter of 2013 included $2.6 million of net catastrophe losses from U.S. tornadoes.  There were no individually significant loss events impacting Montpelier Syndicate 5151 during the second quarter of 2012. The majority of Montpelier Syndicate 5151’s 2013 and 2012 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.

Prior Year Loss and LAE Development

During the second quarter of 2013, Montpelier Syndicate 5151 experienced $14.5 million in net favorable development on prior year loss and LAE reserves, which included loss reserve movements associated with:

·The settlement of a 2012 marine loss ($2.4 million decrease),

·2012 Costa Concordia accident ($2.2 million decrease),

·2011 Japan earthquake ($1.9 million decrease).

In addition to the foregoing, claims reported to Montpelier Syndicate 5151 during the second quarter of 2013 indicated that IBNR for natural catastrophe losses it initially recorded during 2012 exceeded the extent of losses that actually occurred, and consequently Montpelier Syndicate 5151 decreased its loss and LAE reserves by a further $1.9 million.

During the second quarter of 2012 Montpelier Syndicate 5151 experienced $3.0 million in net favorable development on prior year loss and LAE reserves relating primarily to 2011 and 2010 catastrophe events ($2.0 million decrease).

The remaining favorable development on prior year loss and LAE reserves recognized during the second quarters of 2013 and 2012 related to small adjustments made across multiple short-tail classes of business.

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

Montpelier Syndicate 5151’s prior year losses and LAE incurred were not significantly impacted by foreign currency movements during the three month period ended June 30, 2013.  Montpelier Syndicate 5151’s prior year losses and LAE incurred were adversely impacted from $2.6 million in foreign currency transaction losses during the three month period ended June 30, 2012.

Since foreign currency transaction gains (losses) are reported as decreases (increases) in Montpelier Syndicate 5151’s losses and LAE incurred, they have a direct impact on its reported underwriting results and its underwriting ratios.

Six month periods ended June 30, 2013 and 2012

Current Year Loss and LAE events

During the six month periods ended June 30, 2013 and 2012, Montpelier Syndicate 5151 experienced $75.6 million and $70.1 million, respectively, in current year net losses and LAE incurred. There were no individually significant loss events impacting Montpelier Syndicate 5151 during these periods, other than those noted above.  The majority of Montpelier Syndicate 5151’s 2013 and 2012 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.

Prior Year Loss and LAE development

During the first half of 2013, Montpelier Syndicate 5151 experienced $7.1 million in net favorable development on prior year loss and LAE reserves.  In addition to the items noted above, the favorable development recognized during that period also included $7.4 million in net unfavorable development on prior year loss and LAE reserves during the first quarter of 2013. The adverse development experienced during the first quarter of 2013 consisted of $14.7 million of net foreign currency transaction losses on Syndicate 5151’s loss and LAE reserves (as described below), partially offset by $7.3 million of favorable development, which reflected adjustments relating to multiple years and classes of businesses.

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During the six month period ended June 30, 2012, Montpelier Syndicate 5151 experienced $18.3 million in net favorable development on prior year loss and LAE reserves.  In addition to the items noted above, the favorable development recognized during the six month period ended June 30, 2012 also included the following events and factors recognized during the first quarter of 2012:

·Non-catastrophe property and casualty IBNR recorded during 2011 and 2010 ($5.7 million decrease),

·2011 Thailand floods ($5.2 million decrease), and

·2011 U.S. storms including Hurricane Irene ($1.3 million decrease).

The remaining favorable development on prior year loss and LAE reserves recognized during the six month periods ended June 30, 2013 and 2012 related to small adjustments made across multiple classes of business.

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

Montpelier Syndicate 5151’s prior year losses and LAE incurred were adversely impacted by foreign currency transaction losses of $13.6 million during the six month period ended June 30, 2013. Montpelier Syndicate 5151’s prior year losses and LAE incurred were not significantly impacted by foreign currency movements during the six month period ended June 30, 2012.

For the six months ended June 30, 2013, Montpelier Syndicate 5151’s loss and LAE ratio of 66.2% (as well as its combined ratio of 105.9%) included 13.2 percentage points of net foreign currency transaction losses from its prior year losses and LAE incurred.

Since a significant portion of Montpelier Syndicate 5151’s loss and LAE reserves are denominated in U.S. dollars, changes in the value of the British pound (Montpelier Syndicate 5151’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, the resulting impact to Montpelier Syndicate 5151’s losses and LAE (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.  The first quarter of 2013 was a period in which there was a significant weakening of the British pound versus the U.S. dollar, and as a result this impact was particularly pronounced during Montpelier Syndicate 5151’s year-to-date 2013 underwriting result.

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

Montpelier Syndicate 5151’s loss and LAE reserves included foreign currency translation gains (losses) of $(1.4) million and $8.8 million during the three month periods ended June 30, 2013 and 2012, respectively, and $21.3 million and $1.2 million during the six month periods ended June 30, 2013 and 2012, respectively.  Since these foreign currency translation gains (losses) are reported as decreases (increases) in Montpelier Syndicate 5151’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 Syndicate 5151’s underwriting expenses for the three and six month periods ended June 30, 2013 and 2012:

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	Three Month Periods Ended June 30,						Six Month Periods Ended June 30,
($ in millions)	2013			2012			2013			2012
Acquisition costs	$	11.9		$	11.8		$	24.8		$	20.4
Acquisition cost ratio	24.3		%	22.4		%	24.0		%	19.7		%
General and administrative expenses	$	7.9		$	11.2		$	16.2		$	19.8
General and administrative expense ratio	16.2		%	21.2		%	15.7		%	19.3		%

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 Montpelier Syndicate 5151’s estimates of loss and LAE fluctuate.

Increases (decreases) in profit commissions, which are accrued based on the estimated results of the subject contract, totaled $0.3  million and $0.8 million for the three month periods ended June 30, 2013 and 2012, respectively, and $0.9 million and $(0.2) million for the six month periods ended June 30, 2013 and 2012, respectively.

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 the commission expenses incurred on assumed business and 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 Syndicate 5151’s acquisition cost ratio for the three month period ended June 30, 2013 increased as compared to that of the comparable 2012 period, due largely to reversals of reinstatement premiums written and earned during the second quarter of 2013. These 2013 reversals reduced net premiums earned (the acquisition cost ratio denominator) without a corresponding reduction in acquisition costs, generating an increase in the acquisition cost ratio.  The 2013 reversal of reinstatement premiums, as well as the increase in profit commission expense noted above, also contributed to the increase in Montpelier Syndicate 5151’s acquisition cost ratio for the first six months of 2013, versus that of the comparable 2012 period.

The following table summarizes Montpelier Syndicate 5151’s general and administrative expenses during the three and six month periods ended June 30, 2013 and 2012:

	Three Month Periods Ended June 30,				Six Month Periods Ended June 30,
(Millions)	2013		2012		2013		2012
Operating expenses	$	6.2	$	8.5	$	13.1	$	15.6
Incentive compensation expenses	1.7		2.7		3.1		4.2
General and administrative expenses	$	7.9	$	11.2	$	16.2	$	19.8

Montpelier Syndicate 5151’s operating expenses incurred during the three and six month periods ended June 30, 2013 were lower than those incurred during the comparable 2012 periods, primarily as result of a non-recurring third party management fee recorded during the second quarter of 2012.

Incentive compensation expenses recorded at Montpelier Syndicate 5151 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.

94

Montpelier Syndicate 5151’s incentive compensation expenses incurred during the 2013 periods presented decreased versus those of the comparable 2012 periods, primarily as a result of its 2013 accruals being provided at a lower projected payout level than that of the prior year.

BLUE CAPITAL

Underwriting results for Blue Capital for the three and six month periods ended June 30, 2013 and 2012 were as follows:

	Three Month Periods Ended June 30,						Six Month Periods Ended June 30,
($ in millions)	2013			2012			2013			2012
Gross premiums written	$	22.6		$	2.4		$	37.2		$	2.4
Ceded reinsurance premiums	(3.0		)	—			(3.0		)	—
Net premiums written	19.6			2.4			34.2			2.4
Change in net unearned premiums	(14.1		)	(2.0		)	(24.9		)	(2.0		)
Net premiums earned	5.5			0.4			9.3			0.4
Loss and LAE — current year losses	(2.0		)	—			(2.0		)	—
Loss and LAE — prior year losses	—			—			—			—
Acquisition costs	(0.6		)	—			(0.9		)	—
General and administrative expenses	(0.9		)	(0.8		)	(1.6		)	(0.8		)
Underwriting income (loss)	$	2.0		$	(0.4	)	$	4.8		$	(0.4	)
Loss and LAE ratio	36.4		%	n/m		%	21.5		%	n/m		%
Acquisition cost ratio	10.9		%	n/m		%	9.7		%	n/m		%
General and administrative expense ratio	16.3		%	n/m		%	17.2		%	n/m		%
GAAP combined ratio	63.6		%	n/m		%	48.4		%	n/m		%

n/m - not meaningful.

Since the commencement of its operations in June 2012, Blue Capital has assumed natural catastrophe exposures on an excess-of-loss basis, all of which has been included in our Property Catastrophe - Treaty line of business.

Blue Capital’s gross premiums written totaled $22.6 million and $37.2 million during the three and six month periods ended June 30, 2013, respectively.  Blue Capital’s gross premiums written during the first half of 2012 totaled $2.4 million, all of which were written during the second quarter. The increase in gross premiums written during the 2013 periods, as compared to those written in 2012, reflects the additional capital deployed into Blue Water Re by the BCGR Listed Fund and the BCAP Cell.

During the second quarter of 2013, Blue Capital ceded $3.0 million of premium to third party reinsurers. Blue Capital purchases reinsurance in the normal course of its business in order to manage its exposures.  The amount and type of reinsurance that Blue Capital 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 Blue Capital’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.

Net premiums earned at Blue Capital were $5.5 million and $9.3 million during the three and six month periods ended June 30, 2013, respectively.  Net premiums earned during the comparable 2012 periods were not significant.  Premiums earned are primarily a function of the amount and timing of net premiums previously written.

Losses incurred and paid at the Blue Capital segment totaled $2.0 million and $0.4 million, respectively, during the three and six month periods ended June 30, 2013, all of which relate to U.S. events that occurred during that period.  Blue Capital did not incur or pay any losses prior to the second quarter of 2013.

Acquisition costs include commissions, profit commissions, brokerage costs and excise taxes, when applicable.

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Blue Capital incurred $0.9 million and $1.6 million of general and administrative expenses during the three and six month periods ended June 30, 2013, respectively, and $0.8 million during the comparable 2012 periods.  Blue Capital’s general and administrative expenses incurred to date have consisted primarily of third party legal and consulting costs associated with the development of our Blue Capital platform, as well as internal personnel costs.

MUSIC RUN-OFF

On December 31, 2011, we completed the MUSIC Sale. Since we have either retained, reinsured or otherwise indemnified Selective for all of the business written by MUSIC with an effective date on or prior to December 31, 2011, our former and future operations associated with MUSIC do not constitute a “discontinued operation” in accordance with GAAP.  The cash flows that we will retain subsequent to the MUSIC Sale, as well as certain reinsurance balances and other designated assets serving as collateral supporting such cash flows, will continue to be presented within this MUSIC Run-Off segment.

Underwriting results for the MUSIC Run-Off segment for the three and six month periods ended June 30, 2013 and 2012 were as follows:

	Three Month Periods Ended June 30,						Six Month Periods Ended June 30,
($ in millions)	2013			2012			2013			2012
Gross premiums written	$	0.3		$	0.2		$	0.6		$	1.5
Ceded reinsurance premiums	—			—			—			—
Net premiums written	0.3			0.2			0.6			1.5
Change in net unearned premiums	—			8.2			—			18.3
Net premiums earned	0.3			8.4			0.6			19.8
Loss and LAE - current year losses	—			(5.6		)	—			(14.1		)
Loss and LAE - prior year losses	(0.5		)	0.1			(0.7		)	0.4
Acquisition costs	(0.1		)	(2.9		)	(0.2		)	(6.9		)
General and administrative expenses	—			—			—			—
Underwriting loss	$	(0.3	)	$	—		$	(0.3	)	$	(0.8	)
Loss and LAE ratio	n/m		%	65.5		%	n/m		%	69.2		%
Acquisition cost ratio	n/m		%	34.5		%	n/m		%	34.8		%
General and administrative expense ratio	n/m		%	—		%	n/m		%	—		%
GAAP combined ratio	n/m		%	100.0		%	n/m		%	104.0		%

n/m - not meaningful.

Premiums written and earned

We assumed $0.3 million and $0.2 million of MUSIC’s premium writings during the three month periods ended June 30, 2013 and 2012, respectively, and $0.6 million and $1.5 million during the six month periods ended June 30, 2013 and 2012, respectively.  Premiums written and earned in the 2013 periods represented additional audit premium relating to policies written on or prior to December 31, 2011. Premiums written and earned during the 2012 periods represented: (i) policies bound by MUSIC with an effective date on or prior to December 31, 2011; and (ii) additional audit premium relating to policies written on or prior to December 31, 2011.

We may be required to assume additional MUSIC premium writings in future periods, but we do not expect such additional writings to be significant.

All premiums written within the MUSIC Run-Off segment relate to the Property and Specialty Individual Risk line of business.

As of June 30, 2013, we had no remaining unearned premiums associated with the MUSIC Sale.

96

Loss and LAE Reserve Movements

The following table summarizes the loss and LAE reserve movements of the MUSIC Run-Off segment for the three and six month periods ended June 30, 2013 and 2012:

	Three Month Periods Ended June 30,						Six Month Periods Ended June 30,
(Millions)	2013			2012			2013			2012
Gross and net unpaid loss and LAE reserves - beginning	$	40.5		$	42.4		$	43.5		$	38.3
Losses and LAE incurred:
Current year losses	—			5.6			—			14.1
Prior year losses	0.5			(0.1		)	0.7			(0.4		)
Total losses and LAE incurred	0.5			5.5			0.7			13.7
Losses and LAE paid and approved for payment	(3.5		)	(3.5		)	(6.7		)	(7.6		)
Gross and net unpaid loss and LAE reserves - ending	$	37.5		$	44.4		$	37.5		$	44.4

The following table summarizes the net loss and LAE ratios of the MUSIC Run-Off segment for the three and six month periods ended June 30, 2013 and 2012:

	Three Month Periods Ended June 30,				Six Month Periods Ended June 30,
	2013		2012		2013		2012
Loss and LAE ratio - current year	n/m	%	66.7	%	n/m	%	71.2	%
Loss and LAE ratio - prior year	n/m	%	(1.2	)%	n/m	%	(2.0	)%
Loss and LAE ratio	n/m	%	65.5	%	n/m	%	69.2	%

n/m - not meaningful.

There were no individually significant loss events experienced within the MUSIC Run-Off segment during the first half of 2013 or 2012.

Underwriting Expenses

The MUSIC Run-Off segment’s acquisition cost ratio for the periods presented reflects the ceding commission (the “MUSIC Ceding Commission”) associated with the business we have assumed from Selective in connection with the MUSIC Sale.  The MUSIC Ceding Commission was designed to reimburse Selective for its general and administrative costs incurred in support of the business it cedes to us. As a result of the MUSIC Ceding Commission, we have not incurred any general and administrative expenses within the MUSIC Run-Off segment during the periods presented.

CORPORATE AND OTHER

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

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Our Corporate and Other results for the three and six month periods ended June 30, 2013 and 2012 were as follows:

	Three Month Periods Ended June 30,						Six Month Periods Ended June 30,
(Millions)	2013			2012			2013			2012
Gross premiums written	$	0.3		$	0.6		$	0.9		$	3.6
Reinsurance premiums ceded	(0.3		)	(0.6		)	(0.9		)	(3.6		)
Net premiums written	—			—			—			—
General and administrative expenses	(9.0		)	(8.0		)	(17.7		)	(15.2		)
Underwriting loss	$	(9.0	)	$	(8.0	)	$	(17.7	)	$	(15.2	)

The gross premiums written and ceded reinsurance premiums presented within Corporate and Other represent the elimination of intercompany excess-of-loss reinsurance covers assumed by Montpelier Bermuda from Montpelier Syndicate 5151.

The following table summarizes the general and administrative expenses of Corporate and Other during the three and six month periods ended June 30, 2013 and 2012:

	Three Month Periods Ended June 30,				Six Month Periods Ended June 30,
(Millions)	2013		2012		2013		2012
Operating expenses	$	5.8	$	4.2	$	11.4	$	9.1
Incentive compensation expenses	3.2		3.8		6.3		6.1
General and administrative expenses	$	9.0	$	8.0	$	17.7	$	15.2

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 being a publicly traded company. Operating expenses incurred during the three and six month periods ended June 30, 2013 increased versus those of the comparable 2012 periods, primarily as a result of the re-allocation of the Company’s risk management expenses from Montpelier Bermuda to Corporate and Other.  This re-allocation was made in response to an increase in the Company’s group-wide risk management activities, including Solvency II and related initiatives.

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.

The decrease in Corporate and Other’s incentive compensation expenses incurred during the second quarter of 2013, versus those of the comparable 2012 period, is primarily the result of our 2013 accruals being provided at a lower projected payout level than that of the prior year.

The increase in incentive compensation expenses incurred within Corporate and Other during the six month period ended June 30, 2013, versus the comparable 2012 period, is due to: (i) a greater number of outstanding RSUs attributable to our Corporate and Other activities due, in part, to Mr. Harris’ Service Agreement (see Note 12); and (ii) the acceleration of the vesting of Mr. Busher’s outstanding RSUs awards (see Note 12).  These items more than offset the impact of  the 2013 incentives being provided at a lower projected payout level than that of the prior year.

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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 and six month periods ended June 30, 2013 and 2012:

	Three Month Periods Ended June 30,						Six Month Periods Ended June 30,
($ in millions)	2013			2012			2013			2012
Investment income	$	18.8		$	18.7		$	37.2		$	37.8
Investment expenses	(2.1		)	(1.5		)	(4.1		)	(3.0		)
Net investment income	16.7			17.2			33.1			34.8
Net realized investment gains	6.9			7.4			16.0			35.6
Net unrealized investment gains (losses)	(68.1		)	5.9			(77.9		)	10.1
Net income (loss) from investment-related derivative instruments:
Foreign Exchange Contracts - investment activities	3.6			2.4			6.5			(0.9		)
Credit Derivatives	(3.8		)	1.5			(4.3		)	2.1
Interest Rate Contracts	(3.8		)	1.0			1.2			1.9
Investment Options and Futures	(3.1		)	—			(1.6		)	(0.5		)
Net foreign currency transaction gains (losses) - investing activities	(1.5		)	(2.4		)	(6.2		)	0.1
Total return on cash and investments ($)	$	(53.1	)	$	33.0		$	(33.2	)	$	83.2
Weighted average investment portfolio value, including cash (1)	$	2,910		$	2,951		$	2,969		$	2,951
Total return on cash and investments (%)	(1.8		)%	1.1		%	(1.1		)%	2.8		%

(1)Our weighted average investment portfolio calculations exclude those cash and cash equivalents that served to collateralize Blue Water Re’s reinsurance operations (which totalled $165.6 million and $22.5 million at June 30, 2013 and 2012, respectively).  These assets generate virtually no investment income and the return on these invested assets is reflected in Blue Water Re’s underwriting result, and is included in our combined ratio.

Our total return on cash and investments during the 2013 periods presented were lower than those in the corresponding 2012 periods, due primarily to net unrealized losses we experienced within our fixed maturity investments during the second quarter of 2013.

Investment income earned during the 2013 periods was lower than that earned in the corresponding 2012 periods. The decline experienced during the three month period ended June 30, 2013, as compared to the corresponding 2012 period, resulted mainly from a decrease in the average size of our investment portfolio.  The decline experienced during the six month period ended June 30, 2013, as compared to the corresponding 2012 period, resulted mainly from declines in short-term interest rates.

Investment expenses incurred during the 2013 periods were higher than those incurred in the corresponding 2012 periods, due mainly to changes in the allocation of invested balances among investment managers.

During the second quarter of 2013 we experienced $61.2 million of net realized and unrealized investment losses consisting of $58.3 million in net losses from our fixed maturity portfolio, $2.3 million in net losses from our equity portfolio and $0.6 million in net losses from our other investments.  During the first half of 2013 we experienced $61.9 million of net realized and unrealized investment losses consisting of $61.4 million in net losses from our fixed maturity portfolio, $1.2 million in net losses from our equity portfolio and $0.7 million in net gains from our other investments.

The fixed maturity net losses we experienced during the 2013 periods were largely the result of an abrupt increase in market interest rates during the latter part of the second quarter.  The equity portfolio net losses we experienced during the 2013 periods followed a trend consistent with that of the U.S. equity market, as measured by the S&P 500, when considering that the majority of our equity securities were purchased in June.  The other investment net gains and losses we experienced during the 2013 periods related primarily to the overall performance of the various limited partnership investments we own.

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During the second quarter of 2012 we experienced $13.3 million of net realized and unrealized investment gains consisting of $13.1 million in net gains from our fixed maturity portfolio, $0.2 million in net losses from our equity portfolio and $0.4 million in net gains from our other investments. During the first half of 2012 we experienced $45.7 million of net realized and unrealized investment gains consisting of $35.6 million in net gains from our fixed maturity portfolio, $7.0 million in net gains from our equity portfolio and $3.1 million in net gains from our other investments.

The fixed maturity net gains we experienced during the 2012 periods were largely the result of declines in U.S. Treasury yields as well as tightening credit spreads between the yield on those securities versus that of U.S. Treasuries.  The equity portfolio gains and losses we experienced during the 2012 periods were not comparable to the trends of the U.S. equity market, as measured by the S&P 500, since, during the period we: (i) significantly reduced the size of our equity portfolio; and (ii) increased our short equity positions.  The other investment net gains we experienced during the 2012 periods related primarily to the overall performance of the various limited partnership investments we own.

Certain of our investment managers have entered into derivative contracts for investment purposes. Our total net income (loss) from investment-related derivative instruments was $(7.1) million and $4.9 million during the three month periods ended June 30, 2013 and 2012, respectively, and $1.8 million and $2.6 million during the six month periods ended June 30, 2013 and 2012, respectively.  Each of our derivative instruments, as well as the income or loss derived therefrom during the periods presented, is further described in Note 6.

During the three month periods ended June 30, 2013 and 2012, we experienced net foreign currency transaction losses on cash and investments (those in connection with our investing activities) of $1.5 million and $2.4 million, respectively. During the six month periods ended June 30, 2013 and 2012, we experienced net foreign currency transaction gains (losses) on cash and investments of $(6.2) million and $0.1 million, respectively.  These foreign currency transaction gains and losses represent foreign exchange fluctuations in the value of our non-U.S. dollar managed cash and investments.

As of June 30, 2013, December 31, 2012 and June 30, 2012, our Level 3 investments measured at fair value, as defined in GAAP, totaled $33.4 million (or 1.3%), $124.3 million (or 4.5%) and $108.9 million (or 4.4%) of our total invested assets measured at fair value, respectively. During the first quarter of 2013, we transferred most of our bank loans from Level 3 to Level 2, reflecting a gradual shift toward holdings that are more broadly syndicated than had previously been the case. We also increased our reliance on pricing services that base their valuations of bank loans on actual transactions, as opposed to non-binding broker quotes.

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We currently hold long and short fixed maturity investments with exposure to the Eurozone. The following table outlines the details of these holdings at June 30, 2013:

June 30, 2013 (Millions)	Fair value of long positions included in fixed maturity investments		Fair value of short positions included in liabilities			Fair valueof net holdings			Cost or amortized cost of net holdings
Eurozone sovereign and agency debt:
Germany	$	16.1	$	(3.7	)	$	12.4		$	12.4
France	2.9		—			2.9			2.9
Netherlands	6.5		—			6.5			6.4
Total Eurozone sovereign and agency debt	$	25.5	$	(3.7	)	$	21.8		$	21.7
Eurozone corporate debt:
Austria	$	0.1	$	—		$	0.1		$	0.1
Finland	—		(1.5		)	(1.5		)	(1.5		)
France	26.5		—			26.5			26.9
Germany	7.5		—			7.5			7.5
Ireland	14.6		—			14.6			14.9
Italy	10.1		—			10.1			10.8
Luxemburg	24.2		(8.2		)	16.0			16.1
Netherlands	23.6		(8.6		)	15.0			15.1
Spain	1.9		—			1.9			1.8
Total Eurozone corporate debt (1)	$	108.5	$	(18.3	)	$	90.2		$	91.7
Eurozone asset-backed securities:
Ireland	$	1.3	$	—		$	1.3		$	1.4
Total Eurozone holdings	$	135.3	$	(22.0	)	$	113.3		$	114.8

(1)Of our total Eurozone corporate debt holdings at June 30, 2013, $41.2 million (amortized cost $41.7 million) represented net debt obligations of financial corporations, with the balance representing net debt obligations of industrial and other non-financial corporations.

Net Foreign Currency Gains and Losses

The following table summarizes the components of our net foreign currency gains (losses) for the three and six month periods ended June 30, 2013 and 2012:

	Three Month Periods Ended June 30,						Six Month Periods Ended June 30,
(Millions)	2013			2012			2013			2012
Net foreign currency transaction gains (losses) - investing activities	$	(1.5	)	$	(2.4	)	$	(6.2	)	$	0.1
Net foreign currency transaction gains (losses) - other activities	(3.8		)	5.3			22.0			0.2
Net foreign currency gains (losses)	$	(5.3	)	$	2.9		$	15.8		$	0.3

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.

The net foreign currency transaction gains (losses) we experienced in connection with our other activities represent net foreign exchange gains and losses resulting from: (i) Montpelier Bermuda’s premiums receivable that are denominated in currencies other than the U.S. dollar (Montpelier Bermuda’s functional currency); and (ii) Montpelier Syndicate 5151’s assets and liabilities that are denominated in currencies other than the British pound (Montpelier Syndicate 5151’s 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 Syndicate 5151’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 exchange rate

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fluctuations, see “Net Income (Loss) From Derivative Instruments”; and (iii) any offsetting foreign currency translation gains and losses we recognize through our comprehensive income or loss associated with Montpelier Syndicate 5151’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 is primarily due to a strengthening (weakening) of the U.S. dollar against the British pound during such periods.

Net Income (Loss) From Derivative Instruments

Our net income (loss) from derivative instruments was $(12.2) million and $2.1 million during the three month periods ended June 30, 2013 and 2012, respectively, and $(7.6) million and $3.6 million during the six month periods ended June 30, 2013 and 2012, respectively.  Each of our derivative instruments, as well as the income and expense derived therefrom during the periods presented, is described in Note 6.

Other Revenue

Our other revenue for the periods presented consisted of: (i) fees earned for transitional services provided to Selective during the 2012 periods in connection with the MUSIC Sale; (ii) recognition of the proceeds from the Loss Development Cover; and (iii) interest on funds advanced to ceding companies to cover losses in accordance with contract terms.

The following table summarizes our other revenue for the three month and six month periods ended June 30, 2013 and 2012:

	Three Month Periods Ended June 30,				Six Month Periods Ended June 30,
(Millions)	2013		2012		2013		2012
Services provided to third parties	$	—	$	0.1	$	—	$	0.4
Revenue from the Loss Development Cover	—		—		—		0.2
Interest on funds advanced	—		0.1		—		0.1
Other revenue	$	—	$	0.2	$	—	$	0.7

Interest and Other Financing Expenses

The following table summarizes our interest and other financing expenses for the three and six month periods ended June 30, 2013 and 2012:

	Three Month Periods Ended June 30,				Six Month Periods Ended June 30,
(Millions)	2013		2012		2013		2012
Interest expense and amortization of costs and discount - 2022 Senior Notes	$	3.5	$	—	$	7.0	$	—
Interest expense and amortization of costs - 2013 Senior Notes	—		3.5		—		7.0
Interest expense - Trust Preferred Securities	1.1		1.1		2.1		2.2
Letter of credit and trust fees	0.1		0.2		0.3		0.6
Interest and other financing expenses	$	4.7	$	4.8	$	9.4	$	9.8

Our interest and other financing expenses were lower than those in the corresponding 2012 periods due to the Reinsurance Trust replacing certain letter of credit facilities that we allowed to expire in accordance with their terms.  See Note 5.

We issued the 2022 Senior Notes on October 5, 2012, and the majority of the net proceeds were used to redeem the 2013 Senior Notes on November 5, 2012. The annual interest expense associated with the 2022 Senior Notes is highly consistent with that of the former 2013 Senior Notes.

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Income Taxes

We are domiciled in Bermuda and have subsidiaries that are domiciled in the U.S., the U.K. and Switzerland. 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 June 30, 2013 and 2012, we recorded an income tax benefit of $0.4 million and zero million, respectively, and during the six month periods ended June 30, 2013 and 2012, we recorded an income tax benefit of $0.2 million and zero million, respectively.  The movements in our income taxes during the 2013 periods were associated primarily with our U.K. operations.  See Note 13.

During the three month periods ended June 30, 2013 and 2012, our Bermuda operations had pretax income (losses) of $(21.1) million and $63.8 million, respectively, and during the six month periods ended June 30, 2013 and 2012, these operations had pretax income of $63.0 million and $175.9 million, respectively.

During the three month periods ended June 30, 2013 and 2012, our U.K. operations had pretax income (losses) of $(2.5) million and $1.7 million, respectively, and during the six month periods ended June 30, 2013 and 2012, these operations had pretax income (losses) of $10.2 million and $(0.1) million, respectively. Of these U.K. entities, only MCL remains in a cumulative net operating loss position.  Although net operating losses ordinarily give rise to deferred tax assets, due to the uncertainty at this time as to whether MCL will generate sufficient taxable income in future periods to utilize such assets, as of June 30, 2013 and December 31, 2012, we established U.K. deferred tax asset valuation allowances of $1.0 million and $3.8 million, respectively, against our existing U.K. gross deferred tax assets of $1.5 million and $4.4 million, respectively.

During each of the three month periods ended June 30, 2013 and 2012, our U.S. operations had pretax income of zero million and during the six month periods ended June 30, 2013 and 2012, these operations had pretax income of zero million and $0.1 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, we have established an offsetting U.S. deferred tax asset valuation allowance against its existing gross deferred tax asset of $14.0 million at June 30, 2013 and December 31, 2012.

During the three and six month periods ended June 30, 2013 and 2012, the income taxes relating to our Switzerland operations totaled less than $0.1 million.

Net Income Attributable to Non-Controlling Interest

During the three and six month periods ended June 30, 2013, the net income attributable to Blue Capital’s third party investors totaled $0.7 million and $1.9 million, respectively.

Dividends Declared on Preferred Shares

During each of the three month periods ended June 30, 2013 and 2012, we declared $3.4 million in cash dividends on our Preferred Shares and during the six month periods ended June 30, 2013 and 2012, we declared $6.7 million in cash 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 companies as described under “Regulation and Capital Requirements” herein. We currently pay a regular dividend of $0.115 per Common Share per quarter and our Preferred Shares have a stated dividend rate of 8.875% per year. 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, restricted net assets, capital requirements, cash collateral requirements, general business opportunities, and legal, tax, regulatory and contractual restrictions.

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The primary sources of cash for our regulated operating subsidiaries are premium collections, investment income and sales and maturities of investments.  The primary uses of cash for our operating subsidiaries are payments of losses and LAE, acquisition costs, operating expenses, 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 fixed maturity investment portfolio with high-quality 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 expected liabilities.  As of June 30, 2013, our fixed maturities had an average credit quality of “AA-” (Very Strong) from Standard & Poor’s and an average duration of 3.4 years. 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 June 30, 2013, our sources of immediate and unencumbered liquidity consisted of: (i) $215.7 million of cash and cash equivalents; (ii) $190.8 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) $323.6 million of liquid fixed maturity investments which currently trade at a narrow bid-ask spread and whose proceeds are available within four business days.  Further, we believe that we have significant sources of additional liquidity within our fixed maturity investment portfolio, although the bid-ask spreads associated with such investment securities would likely 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.  We also believe that we have additional liquidity within our portfolio of equity securities, whose proceeds are available within four business days.

We do not currently have a revolving credit facility because we anticipate that our current cash and cash equivalent balances, our capacity to raise additional cash through sales and maturities of investments and our projected future cash flows from operations will be sufficient to cover our cash obligations under most loss scenarios through the foreseeable future.

Capital Resources

The following table summarizes our capital structure as of June 30, 2013 and December 31, 2012:

	June 30,		Dec. 31,
(Millions)	2013		2012
2022 Senior Notes, at face value	$	300.0	$	300.0
Trust Preferred Securities	100.0		100.0
Total Debt	$	400.0	$	400.0
Preferred Shareholders’ Equity available to the Company	150.0		150.0
Common Shareholders’ Equity available to the Company	1,420.0		1,479.4
Total Capital available to the Company	$	1,970.0	$	2,029.4

Our total capital decreased by $59.4 million during the first half of 2013 as a result of our recording comprehensive income available to the Company of $68.3 million, recognizing $4.7 million of additional paid-in capital through the amortization and issuances of share-based compensation, declaring $18.8 million in dividends to holders of Common Shares and Preferred Shares and repurchasing $113.6 million of Common 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.

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.

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The LIBOR Swap, which we entered into in February 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, and 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.

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 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 holders of our Common and Preferred Shares 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 letter of credit facilities are secured by collateral accounts 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, the secured facilities require 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 our collateral.  As of June 30, 2013 and December 31, 2012, our debt to capital ratio (which, as defined in such agreements, is the amount of our 2022 Senior Notes outstanding divided by the sum of: (i) the amount of our 2022 Senior Notes outstanding; and (ii) the amount of our total shareholders’ equity available to the Company, expressed as a percentage) was 16.0% and 15.5%, respectively, and Montpelier Re’s A.M. Best financial strength rating was “A” (with a stable outlook).

We established the Reinsurance Trust as a means of providing statutory credit to Montpelier Re’s cedants and the Lloyd’s Capital Trust 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 for detailed information concerning our regulatory and capital requirements.

Financial Strength Ratings

Reinsurance contracts do not discharge ceding companies from their obligations to policyholders.  Therefore, ceding companies often require their reinsurers to have, and to maintain, strong financial strength ratings as assurance that their claims will be paid.  Montpelier Re and Syndicate 5151 (through Lloyd’s) each maintain financial strength ratings from one or more independent rating agencies, including A.M. Best, Standard & Poor’s and Fitch Ratings Ltd.

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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 stable outlook) and “A” by Fitch Ratings Ltd. (Strong, with a stable outlook).  “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 us. 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. 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. Either of these events could adversely affect our ability to conduct business.

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 Central Fund. The Lloyd’s Central Fund is available at the discretion of the Council of Lloyd’s to meet any valid claim that cannot be met by the resources of any 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 “A+” by Fitch Ratings Ltd. (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 “A+” is the fifth highest of twenty-four Fitch Ratings Ltd. financial strength ratings.

A downgrade of Lloyds’ A.M. Best or Standard & Poor’s rating could also trigger provisions allowing some ceding companies to opt to cancel their reinsurance contracts with us. 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.

Blue Water Re

Blue Water Re fully collateralizes its reinsurance obligations and does not operate with a financial strength rating.

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.

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Off-Balance Sheet Arrangements

Our Foreign Exchange Contracts, Credit Derivatives, Interest Rate Contracts, Investment Options and Futures and the Loss Development Cover each constitute off-balance sheet arrangements.  Excluding these specific transactions, as of June 30, 2013, we were not subject to any off-balance sheet arrangement that we believe is material to our investors.

Cash Flows

We experienced a net increase in our cash and cash equivalents of $107.9 million and $223.4 million during the six month periods ended June 30, 2013 and 2012, respectively.

We generated $58.4 million and $114.6 million of net cash and cash equivalents from our operations during the 2013 and 2012 periods, respectively, which resulted primarily from our premiums received, net of acquisition costs, exceeding our net losses and operating expenses paid.

Our investment activities provided net cash and cash equivalents of $91.6 million and $213.5 million during the 2013 and 2012 periods, respectively.  The decrease in cash flows provided from our investment activities from the 2012 period to the 2013 period was primarily of the result of significant fluctuations in our restricted cash held in support our investment securities sold short and derivative positions.

Our financing activities used net cash and cash equivalents of $36.5 million and $103.1 million during the 2013 and 2012 periods, respectively. The decrease in cash used for financing activities during the 2013 period is due primarily to the receipt of $97.4 million of third party investment proceeds by Blue Capital.

Detailed information regarding our cash flows for the six month periods ended June 30, 2013 and 2012, follows:

For the six month period ended June 30, 2013:

Our cash flows provided from operations totaled $58.4 million.

Our cash flows provided from investing activities totaled $91.6 million, resulting from the following:

·we received $149.1 million from net sales of fixed maturity investments,

·we received $3.2 million from net sales of equity securities and other investments,

·we paid $7.8 million in settlements of investment-related derivative instruments,

·we had a $45.9 million increase in our restricted cash,

·we paid $6.4 million in investment performance fees, and

·we paid $0.6 million to acquire capitalized assets.

Our cash flows used for financing activities totaled $36.5 million, resulting from the following:

·we paid $114.7 million to repurchase Common Shares,

·we received $97.4 million from third party investors in Blue Capital, and

·we paid $19.2 million in dividends to holders of Common Shares and Preferred Shares.

We also experienced a $5.6 million decrease in the U.S. dollar value of our cash and cash equivalents due to foreign currency exchange rate fluctuations.

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For the six month period ended June 30, 2012:

Our cash flows provided from operations totaled $114.6 million.

Our cash flows provided from investing activities totaled $213.5 million, resulting from the following:

·we received $114.0 million from net sales of fixed maturity investments,

·we received $62.2 million from net sales of equity securities and other investments,

·we paid $1.0 million of closing expenses associated with the MUSIC Sale,

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

·we had a $39.6 million decrease in our restricted cash, and

·we paid $0.2 million to acquire capitalized assets.

Our cash flows used for financing activities totaled $103.1 million, resulting from the following:

·we paid $83.9 million to repurchase Common Shares, and

·we paid $19.2 million in dividends to holders of Common Shares and Preferred Shares.

We also experienced a $1.6 million decrease 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 June 30, 2013:

(Millions) Rating / Type	Fair Value at June 30, 2013
AAA	$	332.0
U.S. Government and agencies (AA+)	435.3
AA	594.0
A	353.0
BBB	260.5
Below BBB	521.2
Not rated (primarily participation in bank loans)	10.2
Total fixed maturities	$	2,506.2

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 and six month periods ended June 30, 2013.  As of June 30, 2013 and December 31, 2012, our best estimate for gross unpaid loss and LAE reserves was $1,003.7 million and $1,112.4 million, respectively, and our best estimates for net unpaid loss and LAE reserves was $923.4 million and $1,009.7 million, respectively.  As of June 30, 2013 and December 31, 2012, IBNR represented 63% and 57% of our net unpaid loss and LAE reserves, respectively.

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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 June 30, 2013, 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 $138.5 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 2012 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 and six month periods ended June 30, 2013.

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 2012 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 and six month periods ended June 30, 2013.

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 2012 Form 10-K, as filed with the SEC.

Share-Based Compensation

On the basis of the Company’s forecasted results for 2013, the Company anticipated issuing 536,761 Variable RSUs for the 2013-2016 award cycle as of June 30, 2013, or an amount equal to the Target Variable RSUs available for that cycle.  The actual number of Variable RSUs to be awarded for the 2013 to 2016 award cycle, if any, will not be finalized until approved by the Compensation Committee in the first quarter of 2014.  See Note 12.

If our results for the balance of 2013 were to develop unfavorably, resulting in a zero (0% of Target) payout for incentive compensation purposes, our share-based compensation accruals at June 30, 2013 would be $3.3 million redundant and the RSU expense that we would expect to incur in future periods would decrease from $15.7 million to $7.4 million.  Additionally, our Variable RSUs outstanding would decrease by 536,761.

If our results for the balance of 2013 were to develop favorably, resulting in the maximum possible (200% of Target)  payout for incentive compensation purposes, our share-based compensation accruals at June 30, 2013 would be $3.3 million deficient and the RSU expense that we would expect to incur in future periods would increase from $15.7 million to $23.9 million.  Additionally, our Variable RSUs outstanding would increase by 536,761.

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 2012 Form 10-K, as filed with the SEC.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Refer to the 2012 Form 10-K, as filed with the SEC, and in particular Item 7A - “Quantitative and Qualitative Disclosures About Market Risk”.  As of June 30, 2013, there were no material changes to our market risks as described in the 2012 Form 10-K.

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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 June 30, 2013. 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 June 30, 2013, 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 disclosed in Note 4 and any disputes involving insurance or reinsurance contracts in the normal course of business, we had no other unresolved legal proceedings at June 30, 2013.

Item 1A.Risk Factors.

Factors that could cause our actual results to differ materially from those in this report are any of the risks described in Item 1A “Risk Factors” included in the 2012 Form 10-K, as filed with the SEC.  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 currently deemed immaterial may also impair our business or results of operations.

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

(a)None.

(b)None.

(c)The following table provides information with respect to the Company’s repurchases of Common Shares during the three month period ended June 30, 2013:

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Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
April 1 - April 30, 2013	722,394	$	25.79	722,394
May 1 - May 31, 2013	1,232,736	25.44		1,232,736
June 1 - June 30, 2013	1,078,643	24.95		1,078,643
Total	3,033,773	$	25.35	3,033,773	$	171,956,024

(1)As of July 30, 2012, the Company had a Common Share repurchase authorization of $45.7 million remaining from its authorization granted by the Board on November 16, 2010.   On July 31, 2012, the Board increased the Company’s total share repurchase authorization by $250.0 million to a total of $295.7 million, of which $172.0  million remained at June 30, 2013. There is no stated expiration date associated with the Company’s Common Share repurchase authorization.

Item 3.Defaults Upon Senior Securities.

None.

Item 4.Mine Safety Disclosures.

Not applicable.

Item 5.Other Information.

None.

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
10.1	Service Agreement between Christopher L. Harris and the Company dated May 20, 2013 (incorporated herein by reference to the Company’s Current Report on Form 8-K filed on May 20, 2013).
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 June 30, 2013, 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. (*)

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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)
August 2, 2013

112

EX-31.1

Exhibit 31.1

Certification Pursuant to Rules 13a-14(a) and 15d-14(a)

under the Securities Exchange Act of 1934, as Amended

I, Christopher L. Harris, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Montpelier Re Holdings Ltd.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

By:	/s/ CHRISTOPHER L. HARRIS
	Name:	Christopher L. Harris
	Title:	President and
		Chief Executive Officer (Principal Executive Officer)

Date: August 2, 2013

1

EX-31.2

Exhibit 31.2

Certification Pursuant to Rules 13a-14(a) and 15d-14(a)

under the Securities Exchange Act of 1934, as Amended

I, Michael S. Paquette, certify that:

1.I have reviewed this report on Form 10-Q of Montpelier Re Holdings Ltd.;

2.Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

By:	/s/ MICHAEL S. PAQUETTE
	Name:	Michael S. Paquette
	Title:	Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)

Date: August 2, 2013

1

EX-32

Exhibit 32

Certification Pursuant to

18 U.S.C. Section 1350

In connection with the Quarterly Report of Montpelier Re Holdings Ltd. (the “Company”) on Form 10-Q for the period ended June 30, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Christopher L. Harris and Michael S. Paquette, Chief Executive Officer and Chief Financial Officer, respectively, of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to our knowledge:

(a)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and,

(b)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

BY:	/s/ CHRISTOPHER L. HARRIS
	Name:	Christopher L. Harris
	Title:	President and
		Chief Executive Officer (Principal Executive Officer)
BY:	/s/ MICHAEL S. PAQUETTE
	Name:	Michael S. Paquette
	Title:	Executive Vice President and Chief Financial Officer (Principal Financial Officer)

Date: August 2, 2013

1

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Regulation and Capital Requirements

6 Months Ended

Jun. 30, 2013

Regulation and Capital Requirements

Regulation and Capital Requirements

NOTE 11.  Regulation and Capital Requirements

Montpelier Re and Blue Water Re are regulated by the Bermuda Monetary Authority (the “BMA”). Montpelier Re is subject to minimum capital requirements, which are established and monitored by the BMA.  Blue Water Re, as a special purpose insurance vehicle, is required to fully-collateralize its reinsurance obligations.

MUAL is regulated by the Prudential Regulation Authority (the “PRA”) and the Financial Conduct Authority (the “FCA”).  MUAL and MCL are also regulated by the Council of Lloyd’s. MUAL and MCL are subject to minimum capital requirements, which are established and monitored by Lloyd’s.

MUI and MEAG are approved by Lloyd’s as Coverholders for Syndicate 5151 and MEAG is registered with the Swiss Financial Market Supervisory Authority (“FINMA”).

Bermuda

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, Montpelier Re is 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.

As of December 31, 2012, Montpelier Re’s Statutory Capital and Surplus was $1,820.8 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 $170.9 million at December 31, 2012. As of December 31, 2012, Montpelier Re’s restricted net assets (the amount of its Statutory Capital and Surplus that was not available to dividend to its parent without BMA approval) totaled $1,365.6 million.

For the year ended December 31, 2012, Montpelier Re’s Statutory Capital and Surplus of $1,820.8 million exceeded its 2012 BSCR of $667.0 million.  Montpelier Re’s 2012, statutory net income was $281.6 million.

Where an insurer or reinsurer believes that its own internal model for measuring risk and determining appropriate levels of capital better reflects the inherent risk of its business, beginning in 2013, it may apply to the BMA for approval to use its internal capital model in substitution for the BSCR model. The BMA may approve an insurer’s or reinsurer’s internal model, provided certain conditions have been established, and may revoke approval of an internal model in the event that the conditions are no longer met or where it feels that the revocation is appropriate. The BMA will review the internal model regularly to confirm that the model continues to meet the conditions.

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.  Additionally, the declaration of any return of capital distributions in any year that would result in a reduction of the prior year-end balance of statutory capital (defined as an insurer’s Statutory Capital and Surplus less its statutory earnings retained) by more than 15% also requires the approval of the BMA.  With respect to the year ended December 31, 2013, Montpelier Re has the ability to dividend up to $455.2 million without BMA approval.  For the six month period ending June 30, 2013, no dividends have been declared and paid by Montpelier Re.  With respect to the year ended December 31, 2012, Montpelier Re had the ability to dividend up to $410.0 million without BMA approval.  During 2012, $75.0 million of dividends were actually declared and paid by Montpelier Re.

The Insurance Act contains provisions regarding group supervision, the authority to exclude specified entities from group supervision, the power for the BMA to withdraw as group supervisor, the functions of the BMA as group supervisor and the power of the BMA to make rules regarding group supervision.  The BMA formally serves as  Montpelier’s group supervisor.

The BMA has issued the Insurance (Group Supervision) Rules 2011 (the “Group Supervision Rules”) and the Insurance (Prudential Standards) (Insurance Group Solvency Requirement) Rules 2011 (the “Group Solvency Rules”) each effective December 31, 2011. The Group Supervision Rules set out the rules in respect of the assessment of the financial situation and solvency of an insurance group, the system of governance and risk management of the insurance group; and supervisory reporting and disclosures of the insurance group.  The Group Solvency Rules set out the rules in respect of the capital and solvency return and enhanced capital requirements for an insurance group.

The Bermuda Companies Act 1981 also limits the Company’s and Montpelier Re’s ability to pay dividends and distributions to its shareholders. Neither the Company nor Montpelier Re is permitted to declare or pay a dividend, or make a distribution out of 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.

Blue Water Re is registered as a Special Purpose Insurer with the BMA, meaning that its insurance and reinsurance contracts must be fully-collateralized, the parties to the transactions must be sophisticated and it is required to notify the BMA of each reinsurance contract it writes. Special Purpose Insurers benefit from an expedited application process, less regulatory stringency and minimal capital and surplus requirements.

Blue Water Re fully collateralizes its reinsurance obligations through cash and cash equivalents held in the Blue Water Trusts, which have been established for the benefit of ceding companies.  As a result, Blue Water Re had no restricted net assets other than those associated with its collateral requirements. As of June 30, 2013 and December 31, 2012, the fair value of all assets held in the Blue Water Trusts was $165.6 million and $22.5 million, which met the minimum values required on those dates.

Blue Water Re is also required to notify the BMA of each reinsurance contract it writes.

United Kingdom

Montpelier participates in the Lloyd’s market through Syndicate 5151, which is managed by MUAL and is capitalized through MCL.  MUAL is regulated by the PRA and the FCA.

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 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 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 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.

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 will, when relevant, coordinate with each other and Lloyd’s over its use of enforcement powers.

MUAL, as a Lloyd’s Managing Agent, is subject to capital requirements and minimum solvency tests established by Lloyd’s.  MUAL’s statutory net assets, as reported to Lloyd’s as of December 31, 2012, totaled $1.3 million.  MUAL’s restricted net assets (the amount of its statutory net assets that were not available to dividend or distribute to its parent without Lloyds’ approval) at December 31, 2012 totaled $0.9 million.  Any amount of MUAL’s statutory net assets in excess of its net restricted assets may be distributed to its parent without Lloyds’ approval.

MCL, Syndicate 5151’s sole 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 2013 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 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 2012 underwriting year of account, MUAL carried out a syndicate Individual Capital Assessment (“ICA”) according to detailed rules prescribed by the FSA under the Individual Capital Adequacy Standards (“ICAS”) regime in force under Solvency I. In the case of Syndicate 5151’s 2013 underwriting year of account, MUAL also carried out a Solvency Capital Requirement (“SCR”) assessment in addition to the ICA, utilizing the Syndicate’s own Lloyd’s approved 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 risk, operational risk, market risk, credit risk, liquidity risk and group risk, and assess the amount of capital that syndicate members should hold against those risks. As a result of the delay in the implementation of Solvency II, an interim capital resources regime based on a combination of the ICA and SCR assessments known colloquially as “ICAS Plus” is to be applied by the FSA and its successor bodies. Effectively, the ICAS requirements will be satisfied through the use of the approved internal model to generate an SCR utilizing Solvency II principles.

Lloyd’s reviews each syndicate’s ICA or 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 ICA or 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 $149.6 million at December 31, 2012, which include 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 Lloyds’ approval) of $149.3 million at that 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.

MCL’s net income, as reported to Lloyd’s for the year ended December 31, 2012, was $26.8 million.

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.

As of June 30, 2013, Syndicate 5151 held $279.7 million in investment securities (including accrued interest) and $55.5 million in cash and cash equivalents (including restricted cash), within the Premiums Trust Funds.  As of December 31, 2012, Syndicate 5151 held $269.3 million in investment securities (including accrued interest) and $102.6 million in cash and cash equivalents (including restricted cash), within the Premiums Trust Funds.

Switzerland

MEAG is subject to registration and supervision by FINMA as an insurance intermediary but is not subject to any minimum capital or solvency requirements.

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Commitments and Contingent Liabilities (Details 2) (USD $) In Millions, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2013	Dec. 31, 2012
Contingent liabilities
Number of unresolved legal proceedings, other than Tribune litigation and proceedings involving insurance and reinsurance contract disputes in the normal course of business	0
Maximum
Contingent liabilities
Percentage of concentration risk, maximum	10.00%
Lloyd's Central Fund (the "Central Fund")
Contingent liabilities
Annual levy imposed on members (as a percent)	0.50%	0.50%
Percentage of additional contribution to the Central Fund, maximum	3.00%
Estimated obligation to the Central Fund for contribution (in dollars)	$ 1.1
Annual subscription charge (as a percent)	0.50%	0.50%
Estimated obligation to Lloyd's for annual subscription charges (in dollars)	$ 2.4

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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Revenues
Gross insurance and reinsurance premiums written	$ 242.7	$ 253.5	$ 503.9	$ 513.2
Ceded reinsurance premiums	(44.9)	(42.7)	(80.1)	(82.4)
Net insurance and reinsurance premiums written	197.8	210.8	423.8	430.8
Change in net unearned insurance and reinsurance premiums	(58.9)	(64.4)	(125.2)	(123.9)
Net insurance and reinsurance premiums earned	138.9	146.4	298.6	306.9
Net investment income	16.7	17.2	33.1	34.8
Net realized and unrealized investment gains (losses)	(61.2)	13.3	(61.9)	45.7
Net foreign currency gains (losses)	(5.3)	2.9	15.8	0.3
Net income (loss) from derivative instruments	(12.2)	2.1	(7.6)	3.6
Other revenue		0.2		0.7
Total revenues	76.9	182.1	278.0	392.0
Underwriting expenses:
Loss and loss adjustment expenses	46.8	57.2	97.4	101.2
Insurance and reinsurance acquisition costs	22.6	23.6	44.7	48.4
General and administrative expenses	26.4	31.0	53.3	56.7
Non-underwriting expenses:
Interest and other financing expenses	4.7	4.8	9.4	9.8
Total expenses	100.5	116.6	204.8	216.1
Income (loss) before income taxes	(23.6)	65.5	73.2	175.9
Income tax benefit	0.4	0	0.2	0
Net income (loss)	(23.2)	65.5	73.4	175.9
Net income attributable to non-controlling interest	(0.7)		(1.9)
Net income (loss) available to the Company	(23.9)	65.5	71.5	175.9
Dividends declared on Preferred Shares	(3.4)	(3.4)	(6.7)	(6.7)
Net income (loss) available to the Company's common shareholders	(27.3)	62.1	64.8	169.2
Net income (loss)	(23.2)	65.5	73.4	175.9
Net change in foreign currency translation	0.3	(1.6)	(3.2)	(1.2)
Comprehensive income (loss)	(22.9)	63.9	70.2	174.7
Net income attributable to non-controlling interest	(0.7)		(1.9)
Comprehensive income (loss) available to the Company	$ (23.6)	$ 63.9	$ 68.3	$ 174.7
Per share data:
Basic and diluted earnings (loss) per Common Share (in dollars per share)	$ (0.52)	$ 1.06	$ 1.19	$ 2.82
Dividends declared per Common Share (in dollars per share)	$ 0.115	$ 0.105	$ 0.23	$ 0.21

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Investments

6 Months Ended

Jun. 30, 2013

Investments

Investments

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:

	June 30, 2013				December 31, 2012
	Cost or Amortized Cost		FairValue		Cost or Amortized Cost		Fair Value
Fixed maturity investments:
Corporate debt securities	$	850.0	$	854.7	$	1,002.9	$	1,037.7
Residential mortgage-backed securities	644.9		637.2		616.2		630.0
Debt securities issued/sponsored by the U.S. Treasury and its agencies	449.7		435.3		466.4		473.0
Commercial mortgage-backed securities	162.1		163.9		148.6		155.6
Debt securities issued by non-U.S. governments and their agencies	92.9		88.3		109.4		113.3
Debt securities issued by U.S. states and political subdivisions	53.2		56.3		65.2		72.2
Other debt obligations	266.6		270.5		253.5		256.8
Total fixed maturity investments	$	2,519.4	$	2,506.2	$	2,662.2	$	2,738.6
Equity securities:
Exchange-listed funds	$	103.0	$	104.1	$	25.0	$	26.9
Other	11.7		12.0		13.1		14.0
Total equity securities	$	114.7	$	116.1	$	38.1	$	40.9

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 high quality, fixed maturity securities 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 June 30, 2013, Montpelier’s fixed maturities had an average credit quality of “AA-” (Very Strong) by Standard & Poor’s and an average duration of 3.4 years (inclusive of fixed maturity short positions).

As of June 30, 2013, 68% of Montpelier’s fixed maturity investments were either rated “A” (Strong) or better by Standard & Poor’s (or represented U.S. government or U.S. government-sponsored enterprise securities), 11% were rated “BBB” (Good) by Standard & Poor’s and 21% were either unrated or rated below “BBB”.

In addition to the investment securities presented above, Montpelier had open short fixed maturity positions of $88.6 million and $127.8 million as of June 30, 2013 and December 31, 2012, respectively.  Montpelier also had open short equity and investment option and future positions of $22.3 million and $11.0 million at June 30, 2013 and December 31, 2012, respectively.  Net unrealized gains (losses) associated with Montpelier’s open short positions totaled $2.6 million and $(4.0) million as of June 30, 2013 and December 31, 2012, respectively.

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:

	June 30, 2013				December 31, 2012
	Cost		Carrying Value		Cost		Carrying Value
Other investments carried at net asset value:
Limited partnership interests and private investment funds	$	69.6	$	69.6	$	76.6	$	76.6
Investment in the BCGR Listed Fund	1.4		1.4		50.0		50.0
Total other investments at net asset value	$	71.0	$	71.0	$	126.6	$	126.6
Other investments carried at fair value:
Limited partnership interests and private investment funds	$	1.1	$	0.7	$	15.8	$	12.7
Derivative instruments	0.4		8.4		0.7		(0.8		)
Total other investments carried at fair value	$	1.5	$	9.1	$	16.5	$	11.9
Other investments	$	72.5	$	80.1	$	143.1	$	138.5

Montpelier’s investments in limited partnership interests and private investment funds are carried at either their fair values or their underlying net asset values, depending on Montpelier’s ownership share. For those funds 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 limited partnerships and private investment funds and the BCGR Listed Fund is reported as net realized and unrealized investment gains (losses) on the Company’s consolidated statements of operations. Net appreciation or depreciation on Montpelier’s derivative instruments is reported as net income (loss) from derivative instruments.

Montpelier’s interests in limited partnerships and private investment funds that are carried at fair value relate to vehicles that invest in distressed mortgages. Redemptions from these investments occur at the discretion of the investment manager or, in other cases, subject to a unanimous vote of the partners. Montpelier expects to fully redeem its remaining limited partnerships and private investment funds that are carried at fair value during 2013.

Montpelier’s interests in limited partnerships and private investment funds that are carried at net asset value relate to vehicles that invest in the following:

· Small growth-oriented businesses,

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

· Public and private equity, fixed maturity and derivative instruments.

The majority of Montpelier’s interests in limited partnerships and private investment funds carried at net asset value can be redeemed or sold with no penalty upon 45 days’ notice.  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 2013.

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 June 30, 2013 and December 31, 2012.  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.

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 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 June 30, 2013 and December 31, 2012:

	June 30, 2013
	Level 1		Level 2		Level 3		Total
Fixed maturity investments:
Corporate debt securities	$	—	$	850.5	$	4.2	$	854.7
Residential mortgage-backed securities	—		637.2		—		637.2
Debt securities issued/sponsored by the U.S. Treasury and its agencies	342.2		93.1		—		435.3
Commercial mortgage-backed securities	—		163.9		—		163.9
Debt securities issued by non-U.S. governments and their agencies	—		88.3		—		88.3
Debt securities issued by U.S. states and political subdivisions	—		56.3		—		56.3
Other debt obligations	—		242.0		28.5		270.5
Total fixed maturity investments	$	342.2	$	2,131.3	$	32.7	$	2,506.2
Equity securities:
Exchange-listed funds	$	75.6	$	28.5	$	—	$	104.1
Other	10.5		1.5		—		12.0
Total equity securities	$	86.1	$	30.0	$	—	$	116.1
Other investments carried at fair value	$	—	$	8.4	$	0.7	$	9.1
Total investments carried at fair value	$	428.3	$	2,169.7	$	33.4	$	2,631.4
Other investments carried at net asset value	$	—	$	57.7	$	13.3	$	71.0
Total investments	$	428.3	$	2,227.4	$	46.7	$	2,702.4

	December 31, 2012
	Level 1		Level 2			Level 3		Total
Fixed maturity investments:
Corporate debt securities	$	—	$	942.3		$	95.4	$	1,037.7
Residential mortgage-backed securities	—		630.0			—		630.0
Debt securities issued/sponsored by the U.S. Treasury and its agencies	267.5		205.5			—		473.0
Commercial mortgage-backed securities	—		155.6			—		155.6
Debt securities issued by non-U.S. governments and their agencies	1.0		112.3			—		113.3
Debt securities issued by U.S. states and political subdivisions	—		72.2			—		72.2
Other debt obligations	—		240.6			16.2		256.8
Total fixed maturity investments	$	268.5	$	2,358.5		$	111.6	$	2,738.6
Equity securities:
Exchange-listed funds	$	—	$	26.9		$	—	$	26.9
Industrial	4.7		—			—		4.7
Consumer goods	4.3		—			—		4.3
Utilities	1.9		—			—		1.9
Other	3.1		—			—		3.1
Total equity securities	$	14.0	$	26.9		$	—	$	40.9
Other investments carried at fair value	$	—	$	(0.8	)	$	12.7	$	11.9
Total investments carried at fair value	$	282.5	$	2,384.6		$	124.3	$	2,791.4
Other investments carried at net asset value	$	—	$	102.8		$	23.8	$	126.6
Total investments	$	282.5	$	2,487.4		$	148.1	$	2,918.0

Level 1 Securities

Montpelier’s investments classified as Level 1 as of June 30, 2013 and December 31, 2012, consisted of U.S. Treasuries, debt securities issued by foreign governments and long equity positions that are publicly listed and/or actively traded in an established market.  In addition, as of June 30, 2013 and December 31, 2012, approximately 22% and 17%, respectively, of Montpelier’s open short fixed maturity positions, and all of Montpelier’s short equity positions, were valued on the basis of Level 1 inputs.

Level 2 Securities

For Montpelier’s investments classified as Level 2 as of June 30, 2013 and December 31, 2012, 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 June 30, 2013 and December 31, 2012, approximately 78% and 83%, respectively, of Montpelier’s open short fixed maturity positions are 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.

Equity securities.  Montpelier’s Level 2 equity securities represent investments in exchange-listed funds which are priced based on net asset values provided by the relevant investment managers.

There were no transfers between Levels 1 and 2 during the three and six month periods ended June 30, 2013 and 2012.

Level 3 Securities

Montpelier’s investments classified as Level 3 as of June 30, 2013 and December 31, 2012 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 limited partnerships and private investment funds.

Further details for selected investment types follow:

Corporate debt securities.  Montpelier’s Level 3 corporate debt securities represent bank loans that are priced using non-binding broker quotes that cannot be corroborated with other externally obtained information.

Other debt obligations.  Montpelier’s Level 3 other debt 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 at June 30, 2013 and December 31, 2012 include investments in limited partnerships and private investment funds that invest in distressed mortgages.  The fair value of these investments is based on net asset values obtained from the investment manager or general partner of the respective entity. The underlying investments held by the investee, which form the basis of the net asset valuation, can require significant management judgment by the investee to determine the underlying value.  Montpelier also considers financial and other information in making its own determination of value. Montpelier regularly reviews the performance of these entities directly with the fund and partnership managers.

As of June 30, 2013 and December 31, 2012, the Company’s Level 3 investments measured at fair value represented 1.3% and 4.5% of its total investments measured at fair value, respectively.  As of June 30, 2013 and December 31, 2012, the Company’s total Level 3 investments represented 1.7% and 5.1% of its total investments, respectively.

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 and six month periods ended June 30, 2013 and 2012:

	Three Month Period Ended June 30, 2013
	Beginning Level 3 balance		Purchases		Sales and maturities			Net realized gains (losses)			Net unrealized gains (losses)		Net transfers out		Ending Level 3 balance
Fixed maturity investments:
Corporate debt securities	$	3.1	$	1.3	$	(0.2	)	$	—		$	—	$	—	$	4.2
Other debt obligations	18.8		10.4		(1.5		)	—			0.8		—		28.5
Total fixed maturity investments	21.9		11.7		(1.7		)	—			0.8		—		32.7
Other investments	1.2		—		(0.7		)	(0.5		)	0.7		—		0.7
Total Level 3 investments at fair value	$	23.1	$	11.7	$	(2.4	)	$	(0.5	)	$	1.5	$	—	$	33.4

	Six Month Period Ended June 30, 2013
	Beginning Level 3 balance		Purchases		Sales and maturities			Net realized gains (losses)			Net unrealized gains (losses)			Net transfers out			Ending Level 3 balance
Fixed maturity investments:
Corporate debt securities	$	95.4	$	9.0	$	(25.5	)	$	(4.2	)	$	10.4		$	(80.9	)	$	4.2
Other debt obligations	16.2		29.9		(6.0		)	—			1.2			(12.8		)	28.5
Total fixed maturity investments	111.6		38.9		(31.5		)	(4.2		)	11.6			(93.7		)	32.7
Other investments	12.7		—		(11.6		)	1.5			(1.9		)	—			0.7
Total Level 3 investments at fair value	$	124.3	$	38.9	$	(43.1	)	$	(2.7	)	$	9.7		$	(93.7	)	$	33.4

	Three Month Period Ended June 30, 2012
	Beginning Level 3 balance		Purchases		Sales and maturities			Net realized gains (losses)			Net unrealized gains (losses)			Ending Level 3 balance
Fixed maturity investments:
Corporate debt securities	$	52.1	$	32.5	$	(9.2	)	$	(0.1	)	$	0.3		$	75.6
Other debt obligations	8.8		—		(1.4		)	—			(0.1		)	7.3
Total fixed maturity investments	60.9		32.5		(10.6		)	(0.1		)	0.2			82.9
Other investments	28.4		—		(2.8		)	1.0			(0.6		)	26.0
Total Level 3 investments at fair value	$	89.3	$	32.5	$	(13.4	)	$	0.9		$	(0.4	)	$	108.9

	Six Month Period Ended June 30, 2012
	Beginning Level 3 balance		Purchases		Sales and maturities			Net realized gains		Net unrealized gains		Ending Level 3 balance
Fixed maturity investments:
Corporate debt securities	$	44.7	$	81.5	$	(52.1	)	$	0.5	$	1.0	$	75.6
Other debt obligations	9.7		—		(2.4		)	—		—		7.3
Total fixed maturity investments	54.4		81.5		(54.5		)	0.5		1.0		82.9
Other investments	29.3		—		(4.8		)	1.3		0.2		26.0
Total Level 3 investments at fair value	$	83.7	$	81.5	$	(59.3	)	$	1.8	$	1.2	$	108.9

During the first quarter of 2013, Montpelier transferred most of its bank loans from Level 3 to Level 2, reflecting a gradual shift toward holdings that are more broadly syndicated than had previously been the case.  Additionally, Montpelier has increased its reliance on pricing services that base their valuations of bank loans on actual transactions, as opposed to non-binding broker quotes.

There were no transfers of Level 3 investments during the three month period ended June 30, 2013 or the  three or six month periods ended June 30, 2012.

Changes in Carrying Value

Changes in the carrying value of Montpelier’s investment portfolio and its short investment positions for the three and six month periods ended June 30, 2013 and 2012, 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 June 30, 2013:
Fixed maturity investments	$	10.5		$	(68.8	)	$	(0.2	)	$	(58.5	)
Equity securities	0.3			(2.6		)	(0.9		)	(3.2		)
Other investments	(3.9		)	3.3			(5.4		)	(6.0		)
Three Month Period Ended June 30, 2012:
Fixed maturity investments	$	6.1		$	7.0		$	(1.9	)	$	11.2
Equity securities	0.7			(0.9		)	(0.8		)	(1.0		)
Other investments	0.6			(0.2		)	2.5			2.9

	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
Six Month Period Ended June 30, 2013:
Fixed maturity investments	$	21.9		$	(83.3	)	$	(4.0	)	$	(65.4	)
Equity securities	0.6			(1.8		)	(2.0		)	(3.2		)
Other investments	(6.5		)	7.2			0.2			0.9
Six Month Period Ended June 30, 2012:
Fixed maturity investments	$	13.8		$	21.8		$	1.2		$	36.8
Equity securities	23.2			(16.2		)	(1.6		)	5.4
Other investments	(1.4		)	4.5			4.0			7.1

(1) Represents net realized and unrealized foreign exchange gains and losses from investments and income and losses derived 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 Note 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 and six month periods ended June 30, 2013 and 2012 consisted of the following:

	Three Month Periods Ended June 30,						Six Month Periods Ended June 30,
	2013			2012			2013			2012
Fixed maturity investments	$	18.7		$	18.0		$	36.7		$	36.4
Cash and cash equivalents	0.1			0.1			0.2			0.2
Equity securities	—			0.1			0.2			0.2
Other investments	—			0.5			0.1			1.0
Total investment income	18.8			18.7			37.2			37.8
Investment expenses	(2.1		)	(1.5		)	(4.1		)	(3.0		)
Net investment income	$	16.7		$	17.2		$	33.1		$	34.8

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 (the “Blue Water Trusts”) established for the benefit of ceding companies.  As of June 30, 2013 and December 31, 2012, the fair value of all assets held in the Blue Water Trusts was $165.6 million and $22.5 million, which met the minimum value required on those dates.

In 2011 Montpelier Re entered into a Reinsurance Trust (the “MUSIC Trust”) in connection with the MUSIC Sale. The MUSIC Trust was established as a means of providing statutory credit to MUSIC in support of the MUSIC Quota Share and the Loss Development Cover.  As of June 30, 2013 and December 31, 2012, the fair value of all assets held in the MUSIC Trust was $39.8 million and $45.4 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 and Montpelier Re has been granted authorized or trusteed reinsurer status in all U.S. states and the District of Columbia.  As of June 30, 2013 and  December 31, 2012, the fair value of all assets held in the Reinsurance Trust was $335.3 million and $338.2 million, respectively, which met the minimum value required on those dates.

A number of states in the U.S. have recently considered reducing their collateral requirements for risks ceded to financially sound non-U.S. reinsurers.  In 2011 Montpelier Re established a second Multi-Beneficiary Reinsurance Trust (the “FL Trust”) in connection with its reduced collateral requirements in Florida.  As of June 30, 2013 and December 31, 2012, the fair value of all assets held in the FL Trust was $25.9 million and $26.0 million, respectively, which met the minimum value required on those dates.

In 2010 Montpelier Re 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 June 30, 2013 and December 31, 2012, the fair value of all assets held in the Lloyd’s Capital Trust was $157.2 million and $149.6 million, respectively, which met the minimum value required on those dates.

Premiums received by Syndicate 5151 are 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.  As of June 30, 2013 and December 31, 2012, the fair value of all assets held in the Premiums Trust Funds was $335.2 million and $371.9 million, respectively. See Note 11.

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 $2,973.6 million and  $1,840.1 million for the six month periods ended June 30, 2013 and 2012, respectively.  Maturities, calls and paydowns of investments totaled $244.9 million and $363.9 million for the six month periods ended June 30, 2013 and 2012, respectively.

Montpelier’s sales of investments for the six month period ended June 30, 2013, includes the portion of its investment in the BCGR Listed Fund ($47.3 million) that was deployed into, and received by, the BCGR Cell during the period. Whereas Montpelier fully consolidates the BCGR Cell’s assets and operations within its consolidated financial statements, it does not consolidate the BCGR Listed Fund’s assets or operations.

There were no non-cash exchanges or involuntary sales of investment securities during these periods.

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.

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 United States 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 United States 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.

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Loss and LAE Reserve Movements (Tables)

6 Months Ended

Jun. 30, 2013

Loss and LAE Reserve Movements

Loss and loss adjustment expense ("LAE") reserve activities

	Three Month Periods Ended June 30,						Six Month Periods Ended June 30,
	2013			2012			2013			2012
Gross unpaid loss and LAE reserves - beginning	$	1,035.3		$	1,035.7		$	1,112.4		$	1,077.1
Reinsurance recoverable on unpaid losses - beginning	(86.6		)	(71.1		)	(102.7		)	(77.7		)
Net unpaid loss and LAE reserves - beginning	948.7			964.6			1,009.7			999.4
Losses and LAE incurred:
Current year losses	94.5			73.9			163.5			146.6
Prior year losses	(47.7		)	(16.7		)	(66.1		)	(45.4		)
Total incurred losses and LAE	46.8			57.2			97.4			101.2
Net foreign currency translation movements on loss and LAE reserves	1.4			(8.8		)	(21.3		)	(1.2		)
Losses and LAE paid and approved for payment:
Current year losses	(10.0		)	(6.9		)	(14.6		)	(9.1		)
Prior year losses	(63.5		)	(55.0		)	(147.8		)	(139.2		)
Total losses and LAE paid and approved for payment	(73.5		)	(61.9		)	(162.4		)	(148.3		)
Net unpaid loss and LAE reserves - ending	923.4			951.1			923.4			951.1
Reinsurance recoverable on unpaid losses - ending	80.3			78.8			80.3			78.8
Gross unpaid loss and LAE reserves - ending	$	1,003.7		$	1,029.9		$	1,003.7		$	1,029.9

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Share-Based Compensation (Details) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Restricted stock units (RSUs)
RSUs Outstanding
Beginning of period (in shares)	1,486,305	1,376,701	1,327,041	761,279
RSU Payments (in shares)	(29,100)	(43,100)	(358,753)	(56,100)
RSU Forfeitures (in shares)	(3,250)	(8,087)	(13,287)	(56,770)
End of period (in shares)	1,520,762	1,588,443	1,520,762	1,588,443
Unamortized Grant Date Fair Value
Beginning of period	$ 17.7	$ 13.3	$ 10.3	$ 4.7
RSU Forfeitures				(0.8)
RSU Expense recognized	(3.5)	(3.5)	(6.8)	(5.3)
End of period	15.7	14.3	15.7	14.3
Restricted stock units (RSUs) | Minimum
Share-Based Compensation
Vesting period			1 year
Restricted stock units (RSUs) | Maximum
Share-Based Compensation
Vesting period			5 years
Variable RSUs Awarded
Share-Based Compensation
Vesting period			4 years
Fixed RSUs Awarded
RSUs Outstanding
RSUs awarded (in shares)	29,000	24,000	29,000	32,000
Unamortized Grant Date Fair Value
RSUs Awarded	0.7	0.5	0.7	0.6
Performance cycle 2013-2016 | Variable RSUs Awarded
Share-Based Compensation
Target ROE (as a percent)	9.76%		9.76%
RSUs to be awarded at target ROE (in shares)	37,807		536,761
Threshold ROE (as a percent)	2.76%		2.76%
Maximum ROE (as a percent)	16.76%		16.76%
RSUs to be awarded at maximum ROE (in shares)			1,073,522
RSUs Outstanding
Variable RSUs to be awarded (in shares)	37,807		536,731
Unamortized Grant Date Fair Value
Variable RSUs to be awarded at Target	0.8		11.5
Performance cycle 2012-2015 | Variable RSUs Awarded
Share-Based Compensation
RSUs to be awarded at target ROE (in shares)				534,140
RSUs Outstanding
Variable RSUs to be awarded (in shares)		238,929		908,034
Unamortized Grant Date Fair Value
Variable RSUs to be awarded at Target		$ 4.0		$ 15.1

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Share-Based Compensation

6 Months Ended

Jun. 30, 2013

Share-Based Compensation

Share-Based Compensation

NOTE 12.  Share-Based Compensation

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 officers, 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 its 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 boards of directors of both the Company and MUAL. 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 June 30, 2013, the Company’s Variable RSUs outstanding consisted of those for the 2013 to 2016 cycle.  The number of Variable RSUs to be awarded for this cycle will be determined based on the Company’s actual 2013 increase in its FCBVPCS versus a target increase in FCBVPCS of 9.76% (“Target”).  If Target is achieved, the Company would expect to grant 536,761 Variable RSUs to participants.  At an increase in FCBVPCS of 2.76% or less (“Threshold”), the Company would not expect to grant any Variable RSUs to participants, and at an increase in FCBVPCS of 16.76% or more (“Maximum”), the Company would expect to grant 1,073,522 Variable RSUs to participants.

The following table summarizes the Company’s RSU activity for the three and six month periods ended June 30, 2013 and 2012:

	Three Month Periods Ended June 30,
	2013					2012
	RSUsOutstanding		Unamortized  Grant Date  Fair Value			RSUs Outstanding		Unamortized Grant Date  Fair Value
Beginning of period	1,486,305		$	17.7		1,376,701		$	13.3
Fixed RSUs Awarded	29,000		0.7			24,000		0.5
Change in Variable RSUs projected for the 2013-2016 cycle	37,807		0.8			—		—
Change in Variable RSUs projected for the 2012-2015 cycle	—		—			238,929		4.0
RSU payments	(29,100	)	—			(43,100	)	—
RSU forfeitures	(3,250	)	—			(8,087	)	—
RSU expense recognized	—		(3.5		)	—		(3.5		)
End of period	1,520,762		$	15.7		1,588,443		$	14.3

	Six Month Periods Ended June 30,
	2013					2012
	RSUsOutstanding		Unamortized  Grant Date  Fair Value			RSUs Outstanding		Unamortized  Grant Date  Fair Value
Beginning of period	1,327,041		$	10.3		761,279		$	4.7
Fixed RSUs Awarded	29,000		0.7			32,000		0.6
Variable RSUs projected to be awarded for the 2013-2016 cycle	536,761		11.5			—		—
Variable RSUs projected to be awarded for the 2012-2015 cycle	—		—			908,034		15.1
RSU payments	(358,753	)	—			(56,100	)	—
RSU forfeitures	(13,287	)	—			(56,770	)	(0.8		)
RSU expense recognized	—		(6.8		)	—		(5.3		)
End of period	1,520,762		15.7			1,588,443		$	14.3

RSU Awards and Payments - three and six month periods ended June 30, 2013

On May 17, 2013, the Board approved a new service agreement with Christopher L. Harris, the Company’s President and Chief Executive Officer (the “Service Agreement”).  Pursuant to the Service Agreement, among other things, Mr. Harris agreed to a voluntary reduction in his annual base salary (and his cash bonus opportunity thereon)  from $900,000 to $750,000, in exchange for the additional Fixed and Variable RSU awards described below, each effective as of June 1, 2013.

During the second quarter of 2013, the Company awarded a total of 29,000 Fixed RSUs to its non-management directors and Mr. Harris.  Of the total Fixed RSUs awarded during that period, 18,000 RSUs represented annual one-year Fixed RSU awards to incumbent directors, 6,000 RSUs represented a one-time three-year Fixed RSU award to a newly-appointed director and 5,000 RSUs represented an annual one-year Fixed RSU award to Mr. Harris pursuant to the Service Agreement.

On the basis of the Company’s forecasted increase in its FCBVPCS for 2013, the Company anticipated issuing 536,731 Variable RSUs for the 2013-2016 award cycle as of June 30, 2013, or 100% of the in force Target RSUs for that cycle at that time. During the second quarter of 2013, the Company awarded an additional 37,807 Variable RSUs (at Target) to its employees for the 2013-2016 award cycle, which included 34,931 Variable RSUs (at Target) awarded to Mr. Harris pursuant to the Service Agreement.

During the three month period ended June 30, 2013, the Company paid out 29,100 vested RSUs and withheld, at the recipient’s election, 3,015 RSUs in satisfaction of statutory income tax liabilities.  As a result, the Company issued 26,085 Common Shares from its treasury.  See Note 7.  The fair value of the RSUs paid out during the second quarter of 2013 was $0.7 million.

During the six month period ended June 30, 2013, the Company paid out 358,753 vested RSUs and withheld, at the recipient’s election, 80,541 RSUs in satisfaction of statutory income tax liabilities.  As a result, the Company issued 278,212 Common Shares from its treasury.  See Note 7.  The fair value of the RSUs paid out during the first half of 2013 was $9.2 million.

None of the outstanding RSUs as of June 30, 2013 were vested.

RSU Awards and Payments - three and six month periods ended June 30, 2012

During the second quarter of 2012,  the Company awarded 24,000 Fixed RSUs to its non-management directors, of which 18,000 RSUs represented annual one-year Fixed RSU awards to incumbent directors and 6,000 RSUs represented a one-time three-year Fixed RSU award to a newly-appointed director.  During the first quarter of 2012, the Company awarded 8,000 five-year Fixed RSUs to employees.

On the basis of the Company’s forecasted increase in its FCBVPCS for 2012, the Company anticipated issuing 908,034 Variable RSUs for the 2012-2015 award cycle as of June 30, 2012, or 170% of the in force Target RSUs for that cycle at that time.

During the three month period ended June 30, 2012, the Company paid out 43,100 vested RSUs and withheld, at the recipient’s election, 5,007 RSUs in satisfaction of statutory income tax liabilities.  As a result, the Company issued 38,093 Common Shares from its treasury.  See Note 7.  The fair value of the RSUs paid out during the second quarter of 2012 was $0.9 million.

During the six month period ended June 30, 2012, the Company paid out 56,100 vested RSUs and withheld, at the recipient’s election, 8,538 RSUs in satisfaction of statutory income tax liabilities.  As a result, the Company issued 47,562 Common Shares from its treasury.  See Note 7.  The fair value of the RSUs paid out during the first half of 2012 was $1.1 million.

None of the outstanding RSUs as of June 30, 2012 were vested.

RSU Forfeitures, Forfeiture Assumptions and Other RSU Adjustments

For the periods presented, the Company assumed a zero to 6% forfeiture rate depending on the nature and term of individual awards and past and recent 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 reduced the unamortized grant date fair value of its RSUs outstanding during the first half of 2012 by $0.8 million.  No reduction in the unamortized grant date fair value of its RSUs outstanding was required during the first half of 2013.

In connection with the planned retirement of Mr. Busher on December 31, 2013, the Company agreed to accelerate the vesting of certain of Mr. Busher’s RSU awards pursuant to a transition letter dated February 21, 2013. See Note 14. The acceleration of the vesting of Mr. Busher’s outstanding RSUs awards resulted in the Company recognizing an additional $0.3 million and $0.7 million of RSU expense in the three and six month periods ended June 30, 2013, respectively, which would have otherwise been recognized in future periods.

The following table summarizes all RSUs outstanding and the unamortized grant date fair value of such RSUs at June 30, 2013 for each award cycle:

Award Date and Cycle	RSUs Outstanding	Unamortized Grant Date Fair Value
Four-year RSU awards granted in 2009	6,250	$	—
Five-year RSU awards granted in 2009	1,500	—
Four-year RSU awards granted in 2010	116,180	0.3
Three-year RSU awards granted in 2011	20,000	0.1
Five-year RSU awards granted in 2011	30,000	0.2
Three-year RSU awards granted in 2012	4,000	—
Four-year RSU awards granted in 2012	770,171	6.1
Five-year RSU awards granted in 2012	8,900	0.1
One-year RSU awards granted in 2013	21,000	0.5
Three-year RSU awards granted in 2013	6,000	0.1
Four-year RSU awards granted in 2013 (those awards in their Initial Award Period)	536,761	8.3
Total RSUs outstanding at June 30, 2013	1,520,762	$	15.7

The Company expects to incur future RSU expense associated with its currently outstanding RSUs of $6.9 million, $5.5 million, $2.6 million and $0.7 million during 2013, 2014, 2015 and 2016 & beyond, respectively.

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Segment Reporting (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013 segment	Jun. 30, 2012	Dec. 31, 2012
Segment Reporting
Number of reportable segments			4
Assets
Total Assets	$ 3,935,700,000		$ 3,935,700,000		$ 3,810,100,000
Income
Gross premiums written	242,700,000	253,500,000	503,900,000	513,200,000
Ceded reinsurance premiums	(44,900,000)	(42,700,000)	(80,100,000)	(82,400,000)
Net insurance and reinsurance premiums written	197,800,000	210,800,000	423,800,000	430,800,000
Change in net unearned premiums	(58,900,000)	(64,400,000)	(125,200,000)	(123,900,000)
Net insurance and reinsurance premiums earned	138,900,000	146,400,000	298,600,000	306,900,000
Loss and LAE	(46,800,000)	(57,200,000)	(97,400,000)	(101,200,000)
Acquisition costs	(22,600,000)	(23,600,000)	(44,700,000)	(48,400,000)
General and administrative expenses	(26,400,000)	(31,000,000)	(53,300,000)	(56,700,000)
Underwriting income	43,100,000	34,600,000	103,200,000	100,600,000
Net investment income	16,700,000	17,200,000	33,100,000	34,800,000
Net investment and foreign exchange gains (losses)	(66,500,000)	16,200,000	(46,100,000)	46,000,000
Net income (expense) from derivatives instruments	(12,200,000)	2,100,000	(7,600,000)	3,600,000
Other revenue		200,000		700,000
Interest and other financing expenses	(4,700,000)	(4,800,000)	(9,400,000)	(9,800,000)
Income (loss) before income taxes	(23,600,000)	65,500,000	73,200,000	175,900,000
Montpelier Bermuda
Assets
Total Assets	3,109,000,000		3,109,000,000		3,126,500,000
Income
Gross premiums written	160,600,000	186,900,000	336,500,000	367,600,000
Ceded reinsurance premiums	(32,300,000)	(40,500,000)	(58,200,000)	(67,100,000)
Net insurance and reinsurance premiums written	128,300,000	146,400,000	278,300,000	300,500,000
Change in net unearned premiums	(44,200,000)	(61,500,000)	(93,000,000)	(117,300,000)
Net insurance and reinsurance premiums earned	84,100,000	84,900,000	185,300,000	183,200,000
Loss and LAE	(18,900,000)	(19,500,000)	(26,200,000)	(35,700,000)
Acquisition costs	(10,000,000)	(8,900,000)	(18,800,000)	(21,100,000)
General and administrative expenses	(8,600,000)	(11,000,000)	(17,800,000)	(20,900,000)
Underwriting income	46,600,000	45,500,000	122,500,000	105,500,000
Net investment income	15,200,000	16,400,000	30,000,000	33,200,000
Net investment and foreign exchange gains (losses)	(61,000,000)	8,900,000	(69,100,000)	45,200,000
Net income (expense) from derivatives instruments	(14,200,000)	4,100,000	(6,700,000)	4,900,000
Other revenue	(700,000)			100,000
Interest and other financing expenses		(200,000)	(100,000)	(600,000)
Income (loss) before income taxes	(14,100,000)	74,700,000	76,600,000	188,300,000
Montpelier Syndicate 5151
Assets
Total Assets	555,700,000		555,700,000		552,900,000
Income
Gross premiums written	58,900,000	63,400,000	128,700,000	138,100,000
Ceded reinsurance premiums	(9,300,000)	(1,600,000)	(18,000,000)	(11,700,000)
Net insurance and reinsurance premiums written	49,600,000	61,800,000	110,700,000	126,400,000
Change in net unearned premiums	(600,000)	(9,100,000)	(7,300,000)	(22,900,000)
Net insurance and reinsurance premiums earned	49,000,000	52,700,000	103,400,000	103,500,000
Loss and LAE	(25,400,000)	(32,200,000)	(68,500,000)	(51,800,000)
Acquisition costs	(11,900,000)	(11,800,000)	(24,800,000)	(20,400,000)
General and administrative expenses	(7,900,000)	(11,200,000)	(16,200,000)	(19,800,000)
Underwriting income	3,800,000	(2,500,000)	(6,100,000)	11,500,000
Net investment income	1,300,000	500,000	2,700,000	1,000,000
Net investment and foreign exchange gains (losses)	(4,700,000)	7,500,000	25,100,000	600,000
Net income (expense) from derivatives instruments	500,000	(200,000)	(2,300,000)	(200,000)
Other revenue	(200,000)	100,000		200,000
Interest and other financing expenses	(500,000)	(700,000)	(1,000,000)	(700,000)
Income (loss) before income taxes	200,000	4,700,000	18,400,000	12,400,000
Blue Capital
Assets
Total Assets	224,200,000		224,200,000		74,000,000
Income
Gross premiums written	22,600,000	2,400,000	37,200,000	2,400,000
Ceded reinsurance premiums	(3,000,000)		(3,000,000)
Net insurance and reinsurance premiums written	19,600,000	2,400,000	34,200,000	2,400,000
Change in net unearned premiums	(14,100,000)	(2,000,000)	(24,900,000)	(2,000,000)
Net insurance and reinsurance premiums earned	5,500,000	400,000	9,300,000	400,000
Loss and LAE	(2,000,000)		(2,000,000)
Acquisition costs	(600,000)		(900,000)
General and administrative expenses	(900,000)	(800,000)	(1,600,000)	(800,000)
Underwriting income	2,000,000	(400,000)	4,800,000	(400,000)
Other revenue	200,000		700,000
Income (loss) before income taxes	2,200,000	(400,000)	5,500,000	(400,000)
MUSIC Run-Off
Assets
Total Assets	39,900,000		39,900,000		48,900,000
Income
Gross premiums written	300,000	200,000	600,000	1,500,000
Net insurance and reinsurance premiums written	300,000	200,000	600,000	1,500,000
Change in net unearned premiums		8,200,000		18,300,000
Net insurance and reinsurance premiums earned	300,000	8,400,000	600,000	19,800,000
Loss and LAE	(500,000)	(5,500,000)	(700,000)	(13,700,000)
Acquisition costs	(100,000)	(2,900,000)	(200,000)	(6,900,000)
Underwriting income	(300,000)		(300,000)	(800,000)
Net investment income	200,000	300,000	400,000	600,000
Net investment and foreign exchange gains (losses)	(700,000)		(800,000)	300,000
Other revenue				200,000
Income (loss) before income taxes	(800,000)	300,000	(700,000)	300,000
Corporate and Other, including intercompany eliminations
Assets
Total Assets	6,900,000		6,900,000		7,800,000
Income
Gross premiums written	300,000	600,000	900,000	3,600,000
Ceded reinsurance premiums	(300,000)	(600,000)	(900,000)	(3,600,000)
General and administrative expenses	(9,000,000)	(8,000,000)	(17,700,000)	(15,200,000)
Underwriting income	(9,000,000)	(8,000,000)	(17,700,000)	(15,200,000)
Net investment and foreign exchange gains (losses)	(100,000)	(200,000)	(1,300,000)	(100,000)
Net income (expense) from derivatives instruments	1,500,000	(1,800,000)	1,400,000	(1,100,000)
Other revenue	700,000	100,000	(700,000)	200,000
Interest and other financing expenses	(4,200,000)	(3,900,000)	(8,300,000)	(8,500,000)
Income (loss) before income taxes	$ (11,100,000)	$ (13,800,000)	$ (26,600,000)	$ (24,700,000)

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Share-Based Compensation (Details 2) (USD $)		3 Months Ended		6 Months Ended						3 Months Ended	6 Months Ended														3 Months Ended	6 Months Ended	3 Months Ended		6 Months Ended	3 Months Ended		6 Months Ended		3 Months Ended
	May 17, 2013 Christopher L. Harris, Company President and Chief Executive Officer	Jun. 30, 2013 Restricted stock units (RSUs)	Jun. 30, 2012 Restricted stock units (RSUs)	Jun. 30, 2013 Restricted stock units (RSUs)	Jun. 30, 2012 Restricted stock units (RSUs)	Mar. 31, 2013 Restricted stock units (RSUs)	Dec. 31, 2012 Restricted stock units (RSUs)	Mar. 31, 2012 Restricted stock units (RSUs)	Dec. 31, 2011 Restricted stock units (RSUs)	Jun. 30, 2013 Restricted stock units (RSUs) Mr. Thomas Busher, Chief Operating Officer	Jun. 30, 2013 Restricted stock units (RSUs) Mr. Thomas Busher, Chief Operating Officer	Jun. 30, 2013 Restricted stock units (RSUs) Minimum	Jun. 30, 2013 Restricted stock units (RSUs) Maximum	Jun. 30, 2013 Restricted stock units (RSUs) Four-year RSU awards granted in 2009	Jun. 30, 2013 Restricted stock units (RSUs) Five-year RSU awards granted in 2009	Jun. 30, 2013 Restricted stock units (RSUs) Four-year RSU awards granted in 2010	Jun. 30, 2013 Restricted stock units (RSUs) Three-year RSU awards granted in 2011	Jun. 30, 2013 Restricted stock units (RSUs) Five-year RSU awards granted in 2011	Jun. 30, 2013 Restricted stock units (RSUs) Three-year RSU awards granted in 2012	Jun. 30, 2013 Restricted stock units (RSUs) Four-year RSU awards granted in 2012	Jun. 30, 2013 Restricted stock units (RSUs) One-year RSU awards granted in 2013	Jun. 30, 2013 Restricted stock units (RSUs) Three-year RSU awards granted in 2013	Jun. 30, 2013 Restricted stock units (RSUs) Four-year RSU awards granted in 2013	Jun. 30, 2013 Restricted stock units (RSUs) Five-year RSU awards granted in 2012	Jun. 30, 2013 Variable RSUs Awarded Performance cycle 2013-2016	Jun. 30, 2013 Variable RSUs Awarded Performance cycle 2013-2016	Jun. 30, 2013 Variable RSUs Awarded Performance cycle 2013-2016 Christopher L. Harris, Company President and Chief Executive Officer	Jun. 30, 2012 Variable RSUs Awarded Performance cycle 2012-2015	Jun. 30, 2012 Variable RSUs Awarded Performance cycle 2012-2015	Jun. 30, 2013 Fixed RSUs Awarded	Jun. 30, 2012 Fixed RSUs Awarded	Jun. 30, 2013 Fixed RSUs Awarded	Jun. 30, 2012 Fixed RSUs Awarded	Jun. 30, 2012 Fixed RSUs Awarded Three-year RSU awards granted in 2012 Newly appointed director	Jun. 30, 2013 Fixed RSUs Awarded One-year RSU awards granted in 2013 Christopher L. Harris, Company President and Chief Executive Officer	Jun. 30, 2013 Fixed RSUs Awarded One-year RSU awards granted in 2013 Incumbent directors	Jun. 30, 2013 Fixed RSUs Awarded Three-year RSU awards granted in 2013 Newly appointed director	Jun. 30, 2012 Fixed RSUs Awarded One-year RSU awards granted in 2012 Incumbent directors	Mar. 31, 2012 Fixed RSUs Awarded Five-year RSU awards granted in 2012 Employees
Share-Based Compensation
Annual salary base before voluntary reduction pursuant to the Service Agreement	$ 900,000
Annual salary base after voluntary reduction pursuant to the Service Agreement	750,000
RSUs awarded (in shares)																														29,000	24,000	29,000	32,000	6,000	5,000	18,000	6,000	18,000	8,000
Variable RSUs to be awarded (in shares)																									37,807	536,731		238,929	908,034
Percentage of target RSUs actually awarded																										100.00%			170.00%
RSUs to be awarded at target ROE (in shares)																									37,807	536,761	34,931		534,140
Payments (in shares)		29,100	43,100	358,753	56,100
RSUs held for meeting statutory income tax liabilities (in shares)		3,015	5,007	80,541	8,538
Common shares issued from treasury (in shares)		26,085	38,093	278,212	47,562
Fair value of units paid out		700,000	900,000	9,200,000	1,100,000
Expected RSUs forfeiture rate												0.00%	6.00%
Accelerated compensation cost										300,000	700,000
Reduction in the unamortized grant date fair value		0	800,000	0	800,000
RSUs for each award cycle
Total awards outstanding (in shares)		1,520,762	1,588,443	1,520,762	1,588,443	1,486,305	1,327,041	1,376,701	761,279					6,250	1,500	116,180	20,000	30,000	4,000	770,171	21,000	6,000	536,761	8,900
Total RSU outstanding		15,700,000	14,300,000	15,700,000	14,300,000	17,700,000	10,300,000	13,300,000	4,700,000							300,000	100,000	200,000		6,100,000	500,000	100,000	8,300,000	100,000
Estimated future expense
Future RSU expense in 2013				6,900,000
Future RSU expense in 2014				5,500,000
Future RSU expense in 2015				2,600,000
Future RSU expense in 2016 and beyond				$ 700,000

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Reinsurance (Details 2) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012	Dec. 31, 2011
Reinsurance recoverable on paid losses
Total reinsurance recoverable on paid losses	$ 26.8		$ 26.8			$ 6.7
Percentage of the total reinsurance recoverable on paid losses	100.00%		100.00%			100.00%
Reinsurance recoverable on unpaid losses
Total reinsurance recoverable on unpaid losses	80.3	78.8	80.3	78.8	86.6	102.7	71.1	77.7
Percentage of the total reinsurance recoverable on unpaid losses	100.00%		100.00%			100.00%
Net increase in estimated ultimate reinsurance recoveries	22.3	10.3	12.1	6.5
A.M. Best, A+ rating
Reinsurance recoverable on paid losses
Total reinsurance recoverable on paid losses	6.5		6.5			1.3
Percentage of the total reinsurance recoverable on paid losses	24.00%		24.00%			19.00%
Reinsurance recoverable on unpaid losses
Total reinsurance recoverable on unpaid losses	26.4		26.4			30.4
Percentage of the total reinsurance recoverable on unpaid losses	33.00%		33.00%			30.00%
A.M. Best, A rating
Reinsurance recoverable on paid losses
Total reinsurance recoverable on paid losses	10.8		10.8			1.7
Percentage of the total reinsurance recoverable on paid losses	41.00%		41.00%			26.00%
Reinsurance recoverable on unpaid losses
Total reinsurance recoverable on unpaid losses	34.0		34.0			36.9
Percentage of the total reinsurance recoverable on unpaid losses	42.00%		42.00%			36.00%
A.M. Best, A- rating
Reinsurance recoverable on paid losses
Total reinsurance recoverable on paid losses	5.7		5.7			1.8
Percentage of the total reinsurance recoverable on paid losses	21.00%		21.00%			27.00%
Reinsurance recoverable on unpaid losses
Total reinsurance recoverable on unpaid losses	2.9		2.9			8.3
Percentage of the total reinsurance recoverable on unpaid losses	4.00%		4.00%			8.00%
Unrated by A.M. Best
Reinsurance recoverable on paid losses
Total reinsurance recoverable on paid losses	3.8		3.8			1.9
Percentage of the total reinsurance recoverable on paid losses	14.00%		14.00%			28.00%
Reinsurance recoverable on unpaid losses
Total reinsurance recoverable on unpaid losses	$ 17.0		$ 17.0			$ 27.1
Percentage of the total reinsurance recoverable on unpaid losses	21.00%		21.00%			26.00%

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Debt, Letter of Credit Facilities and Trust Arrangements (Tables)

6 Months Ended

Jun. 30, 2013

Debt, Letter of Credit Facilities and Trust Arrangements

Schedule of letter of credit facilities

Secured operational Letter of Credit Facilities	Total Capacity		Amount Drawn		Expiry Date
Four Year Committed Facility	$	75.0	$	2.3	Oct. 2016
Bilateral Facility	75.0		23.0		None

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Investments (Tables)

6 Months Ended

Jun. 30, 2013

Investments

Schedule of the aggregate cost (or amortized cost) and fair value of fixed maturity investments and equity securities, by investment type

	June 30, 2013				December 31, 2012
	Cost or Amortized Cost		FairValue		Cost or Amortized Cost		Fair Value
Fixed maturity investments:
Corporate debt securities	$	850.0	$	854.7	$	1,002.9	$	1,037.7
Residential mortgage-backed securities	644.9		637.2		616.2		630.0
Debt securities issued/sponsored by the U.S. Treasury and its agencies	449.7		435.3		466.4		473.0
Commercial mortgage-backed securities	162.1		163.9		148.6		155.6
Debt securities issued by non-U.S. governments and their agencies	92.9		88.3		109.4		113.3
Debt securities issued by U.S. states and political subdivisions	53.2		56.3		65.2		72.2
Other debt obligations	266.6		270.5		253.5		256.8
Total fixed maturity investments	$	2,519.4	$	2,506.2	$	2,662.2	$	2,738.6
Equity securities:
Exchange-listed funds	$	103.0	$	104.1	$	25.0	$	26.9
Other	11.7		12.0		13.1		14.0
Total equity securities	$	114.7	$	116.1	$	38.1	$	40.9

Schedule of the aggregate cost and carrying value of other investments, by investment type

	June 30, 2013				December 31, 2012
	Cost		Carrying Value		Cost		Carrying Value
Other investments carried at net asset value:
Limited partnership interests and private investment funds	$	69.6	$	69.6	$	76.6	$	76.6
Investment in the BCGR Listed Fund	1.4		1.4		50.0		50.0
Total other investments at net asset value	$	71.0	$	71.0	$	126.6	$	126.6
Other investments carried at fair value:
Limited partnership interests and private investment funds	$	1.1	$	0.7	$	15.8	$	12.7
Derivative instruments	0.4		8.4		0.7		(0.8		)
Total other investments carried at fair value	$	1.5	$	9.1	$	16.5	$	11.9
Other investments	$	72.5	$	80.1	$	143.1	$	138.5

Investments carried at fair value, categorized by the level within the hierarchy in which the fair value measurements fall

	June 30, 2013
	Level 1		Level 2		Level 3		Total
Fixed maturity investments:
Corporate debt securities	$	—	$	850.5	$	4.2	$	854.7
Residential mortgage-backed securities	—		637.2		—		637.2
Debt securities issued/sponsored by the U.S. Treasury and its agencies	342.2		93.1		—		435.3
Commercial mortgage-backed securities	—		163.9		—		163.9
Debt securities issued by non-U.S. governments and their agencies	—		88.3		—		88.3
Debt securities issued by U.S. states and political subdivisions	—		56.3		—		56.3
Other debt obligations	—		242.0		28.5		270.5
Total fixed maturity investments	$	342.2	$	2,131.3	$	32.7	$	2,506.2
Equity securities:
Exchange-listed funds	$	75.6	$	28.5	$	—	$	104.1
Other	10.5		1.5		—		12.0
Total equity securities	$	86.1	$	30.0	$	—	$	116.1
Other investments carried at fair value	$	—	$	8.4	$	0.7	$	9.1
Total investments carried at fair value	$	428.3	$	2,169.7	$	33.4	$	2,631.4
Other investments carried at net asset value	$	—	$	57.7	$	13.3	$	71.0
Total investments	$	428.3	$	2,227.4	$	46.7	$	2,702.4

	December 31, 2012
	Level 1		Level 2			Level 3		Total
Fixed maturity investments:
Corporate debt securities	$	—	$	942.3		$	95.4	$	1,037.7
Residential mortgage-backed securities	—		630.0			—		630.0
Debt securities issued/sponsored by the U.S. Treasury and its agencies	267.5		205.5			—		473.0
Commercial mortgage-backed securities	—		155.6			—		155.6
Debt securities issued by non-U.S. governments and their agencies	1.0		112.3			—		113.3
Debt securities issued by U.S. states and political subdivisions	—		72.2			—		72.2
Other debt obligations	—		240.6			16.2		256.8
Total fixed maturity investments	$	268.5	$	2,358.5		$	111.6	$	2,738.6
Equity securities:
Exchange-listed funds	$	—	$	26.9		$	—	$	26.9
Industrial	4.7		—			—		4.7
Consumer goods	4.3		—			—		4.3
Utilities	1.9		—			—		1.9
Other	3.1		—			—		3.1
Total equity securities	$	14.0	$	26.9		$	—	$	40.9
Other investments carried at fair value	$	—	$	(0.8	)	$	12.7	$	11.9
Total investments carried at fair value	$	282.5	$	2,384.6		$	124.3	$	2,791.4
Other investments carried at net asset value	$	—	$	102.8		$	23.8	$	126.6
Total investments	$	282.5	$	2,487.4		$	148.1	$	2,918.0

Reconciliation of the beginning and ending balances for all investments measured at fair value on a recurring basis using Level 3 inputs

	Three Month Period Ended June 30, 2013
	Beginning Level 3 balance		Purchases		Sales and maturities			Net realized gains (losses)			Net unrealized gains (losses)		Net transfers out		Ending Level 3 balance
Fixed maturity investments:
Corporate debt securities	$	3.1	$	1.3	$	(0.2	)	$	—		$	—	$	—	$	4.2
Other debt obligations	18.8		10.4		(1.5		)	—			0.8		—		28.5
Total fixed maturity investments	21.9		11.7		(1.7		)	—			0.8		—		32.7
Other investments	1.2		—		(0.7		)	(0.5		)	0.7		—		0.7
Total Level 3 investments at fair value	$	23.1	$	11.7	$	(2.4	)	$	(0.5	)	$	1.5	$	—	$	33.4

	Six Month Period Ended June 30, 2013
	Beginning Level 3 balance		Purchases		Sales and maturities			Net realized gains (losses)			Net unrealized gains (losses)			Net transfers out			Ending Level 3 balance
Fixed maturity investments:
Corporate debt securities	$	95.4	$	9.0	$	(25.5	)	$	(4.2	)	$	10.4		$	(80.9	)	$	4.2
Other debt obligations	16.2		29.9		(6.0		)	—			1.2			(12.8		)	28.5
Total fixed maturity investments	111.6		38.9		(31.5		)	(4.2		)	11.6			(93.7		)	32.7
Other investments	12.7		—		(11.6		)	1.5			(1.9		)	—			0.7
Total Level 3 investments at fair value	$	124.3	$	38.9	$	(43.1	)	$	(2.7	)	$	9.7		$	(93.7	)	$	33.4

	Three Month Period Ended June 30, 2012
	Beginning Level 3 balance		Purchases		Sales and maturities			Net realized gains (losses)			Net unrealized gains (losses)			Ending Level 3 balance
Fixed maturity investments:
Corporate debt securities	$	52.1	$	32.5	$	(9.2	)	$	(0.1	)	$	0.3		$	75.6
Other debt obligations	8.8		—		(1.4		)	—			(0.1		)	7.3
Total fixed maturity investments	60.9		32.5		(10.6		)	(0.1		)	0.2			82.9
Other investments	28.4		—		(2.8		)	1.0			(0.6		)	26.0
Total Level 3 investments at fair value	$	89.3	$	32.5	$	(13.4	)	$	0.9		$	(0.4	)	$	108.9

	Six Month Period Ended June 30, 2012
	Beginning Level 3 balance		Purchases		Sales and maturities			Net realized gains		Net unrealized gains		Ending Level 3 balance
Fixed maturity investments:
Corporate debt securities	$	44.7	$	81.5	$	(52.1	)	$	0.5	$	1.0	$	75.6
Other debt obligations	9.7		—		(2.4		)	—		—		7.3
Total fixed maturity investments	54.4		81.5		(54.5		)	0.5		1.0		82.9
Other investments	29.3		—		(4.8		)	1.3		0.2		26.0
Total Level 3 investments at fair value	$	83.7	$	81.5	$	(59.3	)	$	1.8	$	1.2	$	108.9

Schedule of changes in the carrying value of investment portfolio and short investment positions

	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 June 30, 2013:
Fixed maturity investments	$	10.5		$	(68.8	)	$	(0.2	)	$	(58.5	)
Equity securities	0.3			(2.6		)	(0.9		)	(3.2		)
Other investments	(3.9		)	3.3			(5.4		)	(6.0		)
Three Month Period Ended June 30, 2012:
Fixed maturity investments	$	6.1		$	7.0		$	(1.9	)	$	11.2
Equity securities	0.7			(0.9		)	(0.8		)	(1.0		)
Other investments	0.6			(0.2		)	2.5			2.9

	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
Six Month Period Ended June 30, 2013:
Fixed maturity investments	$	21.9		$	(83.3	)	$	(4.0	)	$	(65.4	)
Equity securities	0.6			(1.8		)	(2.0		)	(3.2		)
Other investments	(6.5		)	7.2			0.2			0.9
Six Month Period Ended June 30, 2012:
Fixed maturity investments	$	13.8		$	21.8		$	1.2		$	36.8
Equity securities	23.2			(16.2		)	(1.6		)	5.4
Other investments	(1.4		)	4.5			4.0			7.1

(1) Represents net realized and unrealized foreign exchange gains and losses from investments and income and losses derived 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 Note 6).  These derivatives are carried at fair value within other investments on the Company’s consolidated balance sheets.

Schedule of net investment income

	Three Month Periods Ended June 30,						Six Month Periods Ended June 30,
	2013			2012			2013			2012
Fixed maturity investments	$	18.7		$	18.0		$	36.7		$	36.4
Cash and cash equivalents	0.1			0.1			0.2			0.2
Equity securities	—			0.1			0.2			0.2
Other investments	—			0.5			0.1			1.0
Total investment income	18.8			18.7			37.2			37.8
Investment expenses	(2.1		)	(1.5		)	(4.1		)	(3.0		)
Net investment income	$	16.7		$	17.2		$	33.1		$	34.8

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Derivative Instruments (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended		3 Months Ended	6 Months Ended						3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended		1 Months Ended	3 Months Ended	1 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013 item	Jun. 30, 2012	Jun. 30, 2013 Foreign Exchange Contracts - underwriting activities	Jun. 30, 2012 Foreign Exchange Contracts - underwriting activities	Jun. 30, 2013 Foreign Exchange Contracts - underwriting activities	Jun. 30, 2012 Foreign Exchange Contracts - underwriting activities	Jun. 30, 2013 Foreign Exchange Contracts- investing activities	Jun. 30, 2012 Foreign Exchange Contracts- investing activities	Jun. 30, 2013 Foreign Exchange Contracts- investing activities	Jun. 30, 2012 Foreign Exchange Contracts- investing activities	Jun. 30, 2013 Credit Derivatives	Jun. 30, 2012 Credit Derivatives	Jun. 30, 2013 Credit Derivatives	Jun. 30, 2012 Credit Derivatives	Jun. 30, 2013 Interest Rate Contracts	Jun. 30, 2012 Interest Rate Contracts	Jun. 30, 2013 Interest Rate Contracts	Jun. 30, 2012 Interest Rate Contracts	Jun. 30, 2013 Investment Options and Futures	Jun. 30, 2013 Investment Options and Futures	Jun. 30, 2012 Investment Options and Futures	Jun. 30, 2013 Investment Options and Futures (long)	Dec. 31, 2012 Investment Options and Futures (long)	Jun. 30, 2013 Investment Options and Futures (short)	Dec. 31, 2012 Investment Options and Futures (short)	Jun. 30, 2013 LIBOR Swap	Jun. 30, 2012 LIBOR Swap	Jun. 30, 2013 LIBOR Swap	Jun. 30, 2012 LIBOR Swap	Jun. 30, 2013 ILW Swaps	Jun. 30, 2012 ILW Swaps	Jun. 30, 2013 ILW Swaps	Jun. 30, 2012 ILW Swaps	May 31, 2012 Engineering Swap	Jun. 30, 2013 Japan Wind Swap item	Jun. 30, 2013 Blue Water Re Swap	Jun. 30, 2013 Not Designated as Hedging Instrument Level 2 U.S. Dollars purchased	Dec. 31, 2012 Not Designated as Hedging Instrument Level 2 U.S. Dollars purchased	Jun. 30, 2013 Not Designated as Hedging Instrument Level 2 U.S. Dollars sold	Dec. 31, 2012 Not Designated as Hedging Instrument Level 2 U.S. Dollars sold	Jun. 30, 2013 Not Designated as Hedging Instrument Level 2 Credit Derivatives	Dec. 31, 2012 Not Designated as Hedging Instrument Level 2 Credit Derivatives	Jun. 30, 2013 Not Designated as Hedging Instrument Level 2 Interest Rate Contracts	Dec. 31, 2012 Not Designated as Hedging Instrument Level 2 Interest Rate Contracts	Jun. 30, 2013 Not Designated as Hedging Instrument Level 2 Investment Options and Futures (long)	Dec. 31, 2012 Not Designated as Hedging Instrument Level 2 Investment Options and Futures (long)	Jun. 30, 2013 Not Designated as Hedging Instrument Level 2 Investment Options and Futures (short)	Jun. 30, 2013 Not Designated as Hedging Instrument Level 2 LIBOR Swap	Dec. 31, 2012 Not Designated as Hedging Instrument Level 2 LIBOR Swap	Jun. 30, 2013 Not Designated as Hedging Instrument Level 3 ILW Swaps	Dec. 31, 2012 Not Designated as Hedging Instrument Level 3 ILW Swaps
Derivative instruments
Number of instruments designated as hedging instruments			0
Fair Value, Assets																								$ 0.5	$ 1.0														$ 4.8	$ (1.1)	$ (1.7)	$ 1.6	$ 8.1	$ (0.4)	$ (3.4)	$ (0.2)	$ 0.5	$ 1.0	$ 0.2	$ 0.1	$ (1.7)	$ 2.0	$ 0.1
Fair Value, Liabilities																										0.2	0
Notional Units																																							308.0	165.0	266.5	155.2	333.0	155.1	1,822.0	137.8	0.1	10.0	13.9	100.0	100.0	25.0	3.0
Net income (loss) from derivative instruments	(12.2)	2.1	(7.6)	3.6	(6.1)	(0.9)	(10.2)	2.2	3.6	2.4	6.5	(0.9)	(3.8)	1.5	4.3	2.1	(3.8)	1.0	1.2	1.9	(3.1)	1.6	(0.5)					1.5	(1.6)	1.4	(0.9)	(0.5)	(0.3)	0.6	(0.3)
Number of swaps entered into by the entity																																					4
Fixed-rate payment on swap																																				0.3	2.0	0.5
Maximum recovery under each swap																																				3.0	5.0	5.0
Aggregate maximum recovery under swaps																																					$ 20.0

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Basis of Presentation and Summary of Significant Accounting Policies (Details 2) (USD $) In Millions, unless otherwise specified	3 Months Ended	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2013	Dec. 31, 2012	Jun. 30, 2013 British Pound (GBP)	Dec. 31, 2012 British Pound (GBP)	Jun. 30, 2012 British Pound (GBP)	Dec. 31, 2011 British Pound (GBP)	Jun. 30, 2013 Swiss Franc (CHF)	Dec. 31, 2012 Swiss Franc (CHF)	Jun. 30, 2012 Swiss Franc (CHF)	Dec. 31, 2011 Swiss Franc (CHF)
Common Shares Held in Treasury
Inception-to-date gains (losses) from issuances of treasury shares	$ 0.1	$ 0.1	$ 0.6
Funds Withheld
Funds withheld by reinsured companies	3.1	3.1	4.1
Movements in the non-controlling interest balance
Non-controlling interest - beginning	32.6
Amounts invested into the BCGR Cell on behalf of third parties	66.0	97.4
Income attributable to non-controlling interest	0.7	1.9
Non-controlling interest - ending	$ 99.3	$ 99.3
Foreign Currency Exchange
Opening Rate				1.5212	1.6234	1.5570	1.5617	1.0583	1.0924	1.0546	1.0634
Closing Rate				1.5212	1.6234	1.5570	1.5617	1.0583	1.0924	1.0546	1.0634

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Investments (Details 2) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Dec. 31, 2012
Other Investments
Cost, Other investments	$ 72.5	$ 143.1
Carrying Value, Other investments	80.1	138.5
Calculation of net asset value, investment redemption, penalty amount	0
Calculation of net asset value, investment redemption, notice period	45 days
Other investments carried at net asset value
Other Investments
Cost, Other investments	71.0	126.6
Carrying Value, Other investments	71.0	126.6
Limited partnership interests and private investment funds carried at net asset value
Other Investments
Cost, Other investments	69.6	76.6
Carrying Value, Other investments	69.6	76.6
BCGR Listed Fund
Other Investments
Cost, Other investments	1.4	50.0
Carrying Value, Other investments	1.4	50.0
Other investments carried at fair value
Other Investments
Cost, Other investments	1.5	16.5
Carrying Value, Other investments	9.1	11.9
Limited partnership interests and private investment funds at fair value
Other Investments
Cost, Other investments	1.1	15.8
Carrying Value, Other investments	0.7	12.7
Derivative instruments
Other Investments
Cost, Other investments	0.4	0.7
Carrying Value, Other investments	$ 8.4	$ (0.8)

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Segment Reporting (Details 2) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Gross premiums written, by line of business and reportable segment and by geographic area of risks insured
Total gross premiums written	$ 242,700,000	$ 253,500,000	$ 503,900,000	$ 513,200,000
Percentage of gross premiums written by a geographic area	100.00%	100.00%	100.00%	100.00%
U.S. and Canada
Gross premiums written, by line of business and reportable segment and by geographic area of risks insured
Total gross premiums written	162,200,000	165,400,000	282,000,000	278,800,000
Percentage of gross premiums written by a geographic area	67.00%	65.00%	56.00%	54.00%
Worldwide
Gross premiums written, by line of business and reportable segment and by geographic area of risks insured
Total gross premiums written	45,100,000	53,100,000	112,000,000	128,600,000
Percentage of gross premiums written by a geographic area	18.00%	21.00%	22.00%	25.00%
Worldwide, excluding U.S. and Canada
Gross premiums written, by line of business and reportable segment and by geographic area of risks insured
Total gross premiums written	4,200,000	600,000	27,000,000	18,300,000
Percentage of gross premiums written by a geographic area	2.00%		5.00%	4.00%
Western Europe, excluding the U.K. and Ireland
Gross premiums written, by line of business and reportable segment and by geographic area of risks insured
Total gross premiums written	1,400,000	3,700,000	26,600,000	25,000,000
Percentage of gross premiums written by a geographic area	1.00%	2.00%	5.00%	5.00%
Japan
Gross premiums written, by line of business and reportable segment and by geographic area of risks insured
Total gross premiums written	17,000,000	20,600,000	19,100,000	22,800,000
Percentage of gross premiums written by a geographic area	7.00%	8.00%	4.00%	4.00%
U.K. and Ireland
Gross premiums written, by line of business and reportable segment and by geographic area of risks insured
Total gross premiums written	4,300,000	3,600,000	14,100,000	16,100,000
Percentage of gross premiums written by a geographic area	2.00%	1.00%	3.00%	3.00%
Other
Gross premiums written, by line of business and reportable segment and by geographic area of risks insured
Total gross premiums written	8,500,000	6,500,000	23,100,000	23,600,000
Percentage of gross premiums written by a geographic area	3.00%	3.00%	5.00%	5.00%
Property Catastrophe - Treaty
Gross premiums written, by line of business and reportable segment and by geographic area of risks insured
Total gross premiums written	143,800,000	151,900,000	285,500,000	290,700,000
Property Specialty - Treaty
Gross premiums written, by line of business and reportable segment and by geographic area of risks insured
Total gross premiums written	12,500,000	12,800,000	27,100,000	26,300,000
Other Specialty - Treaty
Gross premiums written, by line of business and reportable segment and by geographic area of risks insured
Total gross premiums written	31,500,000	34,600,000	82,100,000	91,400,000
Property and Specialty Individual Risk
Gross premiums written, by line of business and reportable segment and by geographic area of risks insured
Total gross premiums written	54,900,000	54,200,000	109,200,000	104,800,000
Montpelier Bermuda
Gross premiums written, by line of business and reportable segment and by geographic area of risks insured
Total gross premiums written	160,600,000	186,900,000	336,500,000	367,600,000
Montpelier Bermuda | Property Catastrophe - Treaty
Gross premiums written, by line of business and reportable segment and by geographic area of risks insured
Total gross premiums written	120,000,000	148,000,000	243,200,000	275,700,000
Montpelier Bermuda | Property Specialty - Treaty
Gross premiums written, by line of business and reportable segment and by geographic area of risks insured
Total gross premiums written	12,000,000	12,300,000	24,000,000	23,500,000
Montpelier Bermuda | Other Specialty - Treaty
Gross premiums written, by line of business and reportable segment and by geographic area of risks insured
Total gross premiums written	16,200,000	11,700,000	46,900,000	45,200,000
Montpelier Bermuda | Property and Specialty Individual Risk
Gross premiums written, by line of business and reportable segment and by geographic area of risks insured
Total gross premiums written	12,400,000	14,900,000	22,400,000	23,200,000
Montpelier Syndicate 5151
Gross premiums written, by line of business and reportable segment and by geographic area of risks insured
Total gross premiums written	58,900,000	63,400,000	128,700,000	138,100,000
Montpelier Syndicate 5151 | Property Catastrophe - Treaty
Gross premiums written, by line of business and reportable segment and by geographic area of risks insured
Total gross premiums written	900,000	900,000	4,200,000	9,000,000
Montpelier Syndicate 5151 | Property Specialty - Treaty
Gross premiums written, by line of business and reportable segment and by geographic area of risks insured
Total gross premiums written	400,000	500,000	3,000,000	2,800,000
Montpelier Syndicate 5151 | Other Specialty - Treaty
Gross premiums written, by line of business and reportable segment and by geographic area of risks insured
Total gross premiums written	15,400,000	22,900,000	35,300,000	46,200,000
Montpelier Syndicate 5151 | Property and Specialty Individual Risk
Gross premiums written, by line of business and reportable segment and by geographic area of risks insured
Total gross premiums written	42,200,000	39,100,000	86,200,000	80,100,000
Blue Capital
Gross premiums written, by line of business and reportable segment and by geographic area of risks insured
Total gross premiums written	22,600,000	2,400,000	37,200,000	2,400,000
Blue Capital | Property Catastrophe - Treaty
Gross premiums written, by line of business and reportable segment and by geographic area of risks insured
Total gross premiums written	22,600,000	2,400,000	37,200,000	2,400,000
MUSIC
Gross premiums written, by line of business and reportable segment and by geographic area of risks insured
Total gross premiums written	300,000	200,000	600,000	1,500,000
MUSIC | Property and Specialty Individual Risk
Gross premiums written, by line of business and reportable segment and by geographic area of risks insured
Total gross premiums written	300,000	200,000	600,000	1,500,000
Corporate and Other
Gross premiums written, by line of business and reportable segment and by geographic area of risks insured
Total gross premiums written	300,000	600,000	900,000	3,600,000
Corporate and Other | Property Catastrophe - Treaty
Gross premiums written, by line of business and reportable segment and by geographic area of risks insured
Total gross premiums written	300,000	600,000	900,000	3,600,000
Corporate and Other | Property Specialty - Treaty
Gross premiums written, by line of business and reportable segment and by geographic area of risks insured
Total gross premiums written	100,000		100,000
Corporate and Other | Other Specialty - Treaty
Gross premiums written, by line of business and reportable segment and by geographic area of risks insured
Total gross premiums written	$ (100,000)		$ (100,000)

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Basic and Diluted Earnings (Loss) Per Common Share (Tables)

6 Months Ended

Jun. 30, 2013

Basic and Diluted Earnings (Loss) Per Common Share

Schedule of computation of basic and diluted earnings (loss) per Common Share

	Three Month Periods Ended June 30,						Six Month Periods Ended June 30,
	2013			2012			2013			2012
Earnings (loss) per Common Share numerator:
Net income (loss) available to the Company’s common shareholders	$	(27.3	)	$	62.1		$	64.8		$	169.2
Less: net earnings allocated to participating securities	—			(1.4		)	(1.3		)	(3.7		)
Net income (loss) available to the Company’s common shareholders	$	(27.3	)	$	60.7		$	63.5		$	165.5
Average Common Shares outstanding (in millions of shares)	52.1			57.3			53.3			58.7
Basic and diluted earnings (loss) per Common Share	$	(0.52	)	$	1.06		$	1.19		$	2.82

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Investments (Details 5) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Fixed maturity investments
Investments
Net Realized Gains (Losses) on Investments	$ 10.5	$ 6.1	$ 21.9	$ 13.8
Net Unrealized Gains (Losses) on Investments	(68.8)	7.0	(83.3)	21.8
Net Foreign Exchange and Income (Expense) From Certain Derivatives	(0.2)	(1.9)	(4.0)	1.2
Total Changes in Carrying Value Reflected in Revenues	(58.5)	11.2	(65.4)	36.8
Equity securities
Investments
Net Realized Gains (Losses) on Investments	0.3	0.7	0.6	23.2
Net Unrealized Gains (Losses) on Investments	(2.6)	(0.9)	(1.8)	(16.2)
Net Foreign Exchange and Income (Expense) From Certain Derivatives	(0.9)	(0.8)	(2.0)	(1.6)
Total Changes in Carrying Value Reflected in Revenues	(3.2)	(1.0)	(3.2)	5.4
Other investments
Investments
Net Realized Gains (Losses) on Investments	(3.9)	0.6	(6.5)	(1.4)
Net Unrealized Gains (Losses) on Investments	3.3	(0.2)	7.2	4.5
Net Foreign Exchange and Income (Expense) From Certain Derivatives	(5.4)	2.5	0.2	4.0
Total Changes in Carrying Value Reflected in Revenues	$ (6.0)	$ 2.9	$ 0.9	$ 7.1

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Reinsurance (Tables)

6 Months Ended

Jun. 30, 2013

Reinsurance

Schedule showing ratings of entity's reinsurer related to reinsurance recoverable on paid losses

	June 30, 2013				December 31, 2012
Rating	Amount		% of Total		Amount		% of Total
A+	$	6.5	24	%	$	1.3	19	%
A	10.8		41		1.7		26
A-	5.7		21		1.8		27
Unrated by A.M. Best	3.8		14		1.9		28
Total reinsurance recoverable on paid losses	$	26.8	100	%	$	6.7	100	%

Schedule showing entity's reinsurer related to reinsurance recoverable on unpaid losses

	June 30, 2013				December 31, 2012
Rating	Amount		% of Total		Amount		% of Total
A+	$	26.4	33	%	$	30.4	30	%
A	34.0		42		36.9		36
A-	2.9		4		8.3		8
Unrated by A.M. Best	17.0		21		27.1		26
Total reinsurance recoverable on unpaid losses	$	80.3	100	%	$	102.7	100	%

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Cash flows from operations:
Net income	$ 73.4	$ 175.9
Charges (credits) to reconcile net income to net cash from operations:
Net realized and unrealized investment losses (gains)	61.9	(45.7)
Net amortization and depreciation of assets and liabilities	5.3	6.8
Expense recognized for RSUs	6.8	5.3
Net change in:
Loss and loss adjustment expense reserves	(84.9)	(46.0)
Reinsurance recoverable on paid and unpaid losses	(14.1)	2.5
Unearned insurance and reinsurance premiums	152.5	153.0
Insurance and reinsurance balances payable	38.8	34.0
Unearned reinsurance premiums ceded	(27.3)	(29.1)
Deferred insurance and reinsurance acquisition costs	(13.9)	(6.8)
Insurance and reinsurance premiums receivable	(125.7)	(140.5)
Other assets	(3.8)	(2.2)
Accounts payable, accrued expenses and other liabilities	1.2	5.8
Other	(11.8)	1.6
Net cash and cash equivalents provided from operations	58.4	114.6
Cash flows from investing activities:
Purchases of fixed maturity investments	(2,911.7)	(1,904.9)
Purchases of equity securities	(154.5)	(102.2)
Purchases of other investments		(20.7)
Sales, maturities, calls and pay downs of fixed maturity investments	3,060.8	2,018.9
Sales of equity securities	90.6	169.0
Sales and redemptions of other investments	67.1	16.1
Payment of closing expenses associated with the MUSIC Sale		(1.0)
Settlements of investment-related derivative instruments	(7.8)	(1.1)
Net change in restricted cash	(45.9)	39.6
Payment of accrued investment performance fees	(6.4)
Acquisitions of capitalized assets	(0.6)	(0.2)
Net cash and cash equivalents provided from investing activities	91.6	213.5
Cash flows from financing activities:
Repurchases of Common Shares	(114.7)	(83.9)
Third party investment in Blue Capital	97.4
Dividends paid on Common Shares	(12.6)	(12.6)
Dividends paid on Preferred Shares	(6.6)	(6.6)
Net cash and cash equivalents used for financing activities	(36.5)	(103.1)
Effect of foreign currency exchange rate fluctuations on cash and cash equivalents	(5.6)	(1.6)
Net increase in cash and cash equivalents during the period	107.9	223.4
Cash and cash equivalents - beginning of year	330.8	340.3
Cash and cash equivalents - end of period	$ 438.7	$ 563.7

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Loss and LAE Reserve Movements

6 Months Ended

Jun. 30, 2013

Loss and LAE Reserve Movements

Loss and LAE Reserve Movements

NOTE 2.  Loss and LAE Reserve Movements

The following table summarizes Montpelier’s loss and LAE reserve movements for the three and six month periods ended June 30, 2013 and 2012:

	Three Month Periods Ended June 30,						Six Month Periods Ended June 30,
	2013			2012			2013			2012
Gross unpaid loss and LAE reserves - beginning	$	1,035.3		$	1,035.7		$	1,112.4		$	1,077.1
Reinsurance recoverable on unpaid losses - beginning	(86.6		)	(71.1		)	(102.7		)	(77.7		)
Net unpaid loss and LAE reserves - beginning	948.7			964.6			1,009.7			999.4
Losses and LAE incurred:
Current year losses	94.5			73.9			163.5			146.6
Prior year losses	(47.7		)	(16.7		)	(66.1		)	(45.4		)
Total incurred losses and LAE	46.8			57.2			97.4			101.2
Net foreign currency translation movements on loss and LAE reserves	1.4			(8.8		)	(21.3		)	(1.2		)
Losses and LAE paid and approved for payment:
Current year losses	(10.0		)	(6.9		)	(14.6		)	(9.1		)
Prior year losses	(63.5		)	(55.0		)	(147.8		)	(139.2		)
Total losses and LAE paid and approved for payment	(73.5		)	(61.9		)	(162.4		)	(148.3		)
Net unpaid loss and LAE reserves - ending	923.4			951.1			923.4			951.1
Reinsurance recoverable on unpaid losses - ending	80.3			78.8			80.3			78.8
Gross unpaid loss and LAE reserves - ending	$	1,003.7		$	1,029.9		$	1,003.7		$	1,029.9

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.

Prior Year Loss and LAE Development — three and six month periods ended June 30, 2013

During the second quarter of 2013, Montpelier experienced $47.7 million in net favorable development on prior year loss and LAE reserves.  This net favorable development related to the following events and factors:

· IBNR reductions associated with Montpelier Bermuda’s medical malpractice class of business ($7.1 million decrease),

· The commutation/settlement of several prior year contracts ($5.4  million decrease),

· 2011 Japan earthquake ($4.7 million decrease),

· 2012 Hurricane Sandy ($4.4 million decrease), and

· 2012 Costa Concordia accident ($2.2 million decrease).

In addition to the foregoing, claims reported to Montpelier during the second quarter of 2013 indicated that IBNR for natural catastrophe losses it initially recorded during 2012 (excluding Hurricane Sandy) exceeded the extent of losses that actually occurred, and consequently Montpelier decreased its loss and LAE reserves by a further $7.5  million during the second quarter of 2013.

The remaining net favorable development on prior year loss and LAE reserves recognized during the second quarter of 2013 related to several smaller adjustments made across multiple classes of business.

During the six month period ended June 30, 2013, Montpelier experienced $66.1 million in net favorable development on prior year loss and LAE reserves.  In addition to the items noted above, the favorable development recognized during the six month period ended June 30, 2013 also included the following events and factors recognized during the first quarter of 2013:

· A settlement associated with the 2010 Deepwater Horizon oil rig explosion and fire ($5.0 million decrease),

· 2011 Japanese earthquake ($3.6 million decrease),

· 2011 fire at a Texas fuel storage facility ($2.6 million increase),

· 2007 fire at a Chilean power plant ($2.5 million increase),

· 2005 Hurricanes ($1.9 million decrease), and

· 2011 Georgia weather events ($1.6 million decrease).

In addition to the foregoing, claims reported to Montpelier during the first quarter of 2013 indicated that IBNR for natural catastrophe losses it initially recorded during 2012 exceeded the extent of losses that actually occurred, and consequently Montpelier decreased its loss and LAE reserves by a further $11.9 million during the first quarter of 2013.

The remaining net favorable development on prior year loss and LAE reserves recognized during the first quarter of 2013 related to several smaller adjustments made across multiple classes of business.

Prior Year Loss and LAE Development — three and six month periods ended June 30, 2012

During the second quarter of 2012, Montpelier experienced $16.7 million in net favorable development on prior year loss and LAE reserves.  This net favorable development related to the following events and factors:

· IBNR reductions within the Other Specialty - Treaty line of business ($13.1 million decrease, $5.0 million of which related specifically to Montpelier Bermuda’s medical malpractice class of business),

· An individual risk loss incurred during 2008 at Montpelier Bermuda ($5.1 million increase), and

· Known 2011 and 2010 catastrophe events ($4.4 million decrease).

The remaining net favorable development on prior year loss and LAE reserves recognized during the second quarter of 2012 related to several smaller adjustments made across multiple classes of business.

During the six month period ended June 30, 2012, Montpelier experienced $45.4 million in net favorable development on prior year loss and LAE reserves.  In addition to the items noted above, the favorable development recognized during the six month period ended June 30, 2012 also included the following events and factors recognized during the first quarter of 2012:

· 2011 Japan earthquake ($6.8 million decrease),

· 2011 Danish cloudburst ($3.9 million increase),

· Three fire losses occurring during 2011 and 2010 ($3.9 million decrease),

· February 2011 New Zealand earthquake ($2.3 million increase), and

· Other known 2011 and 2010 catastrophe events ($1.3 million increase).

In addition to the foregoing, claims reported to Montpelier during the first quarter of 2012 indicated that the non-catastrophe property and casualty IBNR it initially recorded during 2011 and 2010 exceeded the extent of losses that actually occurred, and consequently Montpelier decreased its loss and LAE reserves by a further $9.8 million during the first quarter of 2012.

The remaining net favorable development on prior year loss and LAE reserves recognized during the first quarter of 2012 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’s prior year losses and LAE incurred included foreign currency transaction gains (losses) of $6.1 million and $(2.0) million during the three month periods ended June 30, 2013 and 2012, respectively, and $(6.7) million and $0.6 million during the six month periods ended June 30, 2013 and 2012, 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 reported 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 included foreign currency translation gains (losses) of $(1.4) million and $8.8 million during the three month periods ended June 30, 2013 and 2012, respectively, and $21.3 million and $1.2 million during the six month periods ended June 30, 2013 and 2012, 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 reported underwriting results or its underwriting ratios.

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Debt, Letter of Credit Facilities and Trust Arrangements

6 Months Ended

Jun. 30, 2013

Debt, Letter of Credit Facilities and Trust Arrangements

Debt, Letter of Credit Facilities and Trust Arrangements

NOTE 5.  Debt, Letter of Credit Facilities and Trust Arrangements

Senior Unsecured Debt Due 2022 (“2022 Senior Notes”)

On October 5, 2012, the Company issued $300.0 million of 2022 Senior Notes. 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 and were issued at a price of 99.682% of their principal amount, providing an effective yield to investors of 4.74%.  The 2022 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 2022 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 2022 Senior Notes, after deducting the issuance discount and debt issuance costs, were $296.4 million.  The net proceeds were used to redeem the 2013 Senior Notes and for general corporate purposes. The debt issuance costs of $2.7 million have been capitalized within other assets on the Company’s consolidated balance sheets and are being amortized over the life of the 2022 Senior Notes.

The carrying value of the 2022 Senior Notes at June 30, 2013 and December 31, 2012, was $299.1 million.

The Company incurred interest expense on the 2022 Senior Notes of $3.5 million and $7.0 million during the three and six month periods ended June 30, 2013, respectively. The Company paid $7.4 million in interest on the 2022 Senior Notes during the six month period ended June 30, 2013.

Senior Unsecured Debt Due 2013 (“2013 Senior Notes”)

During 2003 the Company issued $250.0 million of 2013 Senior Notes. The 2013 Senior Notes bore interest at a fixed rate of 6.125% per annum, payable semi-annually in arrears on February 15 and August 15 of each year and were scheduled to mature on August 15, 2013.

On November 5, 2012, the Company fully redeemed the 2013 Senior Notes at a “make-whole” redemption price of $237.6 million (104.2% of the principal thereof), plus accrued and unpaid interest to the redemption date.  At the time of redemption, the remaining principal amount of the 2013 Senior Notes was $227.9 million.

The Company incurred interest expense on the 2013 Senior Notes of $3.5 million and $7.0 million during the three and six month periods ended June 30, 2012, respectively.  The Company paid $7.0 million in interest on the 2013 Senior Notes during the six month period ended June 30, 2012.

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 of 3-month LIBOR plus 380 basis points, reset quarterly.  This floating rate varied from 4.07% to 4.11% during the six month period ended June 30, 2013, and from 4.26% to 4.38% during the six month ended June 30, 2012.

The Company incurred interest expense on the Trust Preferred Securities of $1.1 million during each of the three month periods ended June 30, 2013 and 2012, respectively, and $2.1 million and $2.2 million during the six month periods ended June 30, 2013 and 2012, respectively.  The Company paid $2.1 million and $2.2 million in interest on the Trust Preferred Securities during the six month periods ended June 30, 2013 and 2012, 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.

LIBOR Swap

On February 7, 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 swap agreement 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 statement of operations, as opposed to interest and financing expenses.  See Note 6.

Letter of Credit Facilities

In the normal course of business, 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 $32.1 million and $128.0 million at June 30, 2013 and December 31, 2012, respectively. The following table outlines these facilities as of June 30, 2013:

Secured operational Letter of Credit Facilities	Total Capacity		Amount Drawn		Expiry Date
Four Year Committed Facility	$	75.0	$	2.3	Oct. 2016
Bilateral Facility	75.0		23.0		None

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 June 30, 2013 and December 31, 2012, the Company and Montpelier Re were in compliance with all covenants.

The Four Year Committed Facility 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.

The Bilateral Facility is subject to an annual commitment fee of 0.45%.  The commitment fee on this facility is charged on drawn balances only.

Trust Arrangements

In 2012 Blue Water Re commenced its operations and established the Blue Water Trusts as a means of providing collateralized reinsurance protection to its cedants.

In 2011 Montpelier Re established the MUSIC Trust as a means of providing statutory credit to MUSIC.

In 2010 Montpelier Re established the Reinsurance Trust as a means of providing statutory credit to certain of Montpelier Re’s U.S. cedants.

In 2011 Montpelier Re established the FL Trust in connection with its reduced collateral requirements to cedants domiciled in Florida.

In 2010 Montpelier established the Lloyd’s Capital Trust in order to meet MCL’s ongoing FAL requirements.

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

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Reinsurance

6 Months Ended

Jun. 30, 2013

Reinsurance

Reinsurance

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 a basis consistent with those used in accounting for the underlying premiums assumed, and are reported as a reduction 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 reinsurance premiums are reported as a reduction in gross premiums written and gross loss and LAE reserves.

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 $32.1 million and $29.7 million for the three month periods ended June 30, 2013 and 2012, respectively, and $53.0 million and $53.3 million for the six month periods ended June 30, 2013 and 2012, respectively.  Net increases in estimated ultimate reinsurance recoveries included in loss and LAE were $22.3 million and $10.3 million for the three month periods ended June 30, 2013 and 2012, respectively, and $12.1 million and $6.5 million for the six month periods ended June 30, 2013 and 2012, 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 generally 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 losses as of June 30, 2013 and December 31, 2012, are as follows:

	June 30, 2013				December 31, 2012
Rating	Amount		% of Total		Amount		% of Total
A+	$	6.5	24	%	$	1.3	19	%
A	10.8		41		1.7		26
A-	5.7		21		1.8		27
Unrated by A.M. Best	3.8		14		1.9		28
Total reinsurance recoverable on paid losses	$	26.8	100	%	$	6.7	100	%

The A.M. Best ratings of Montpelier’s reinsurers related to reinsurance recoverable on unpaid losses at June 30, 2013 and December 31, 2012, are as follows:

	June 30, 2013				December 31, 2012
Rating	Amount		% of Total		Amount		% of Total
A+	$	26.4	33	%	$	30.4	30	%
A	34.0		42		36.9		36
A-	2.9		4		8.3		8
Unrated by A.M. Best	17.0		21		27.1		26
Total reinsurance recoverable on unpaid losses	$	80.3	100	%	$	102.7	100	%

Montpelier’s unrated reinsurance recoverables as of June 30, 2013 and December 31, 2012, 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.

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 June 30, 2013, Montpelier had no ongoing material insurance or reinsurance contract disputes.

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Investments (Details 3) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Investments carried at fair value
Fair Value, Fixed maturity investments	$ 2,506.2		$ 2,506.2		$ 2,738.6
Fair Value, Equity securities	116.1		116.1		40.9
Transfers between levels 1 and level 2 of fair value hierarchy	0	0	0	0
Level 1
Investments carried at fair value
Percentage of open short fixed maturity positions valued at fair value	22.00%		22.00%		17.00%
Level 2
Investments carried at fair value
Percentage of open short fixed maturity positions valued at fair value	78.00%		78.00%		83.00%
Level 3
Investments carried at fair value
Percentage of total investments measured using Level 3 inputs	1.70%		1.70%		5.10%
Recurring basis | Level 1
Investments carried at fair value
Fair Value, Fixed maturity investments	342.2		342.2		268.5
Fair Value, Equity securities	86.1		86.1		14.0
Total investments carried at fair value	428.3		428.3		282.5
Total investments	428.3		428.3		282.5
Recurring basis | Level 1 | Debt securities issued/sponsored by the U.S. Treasury and its agencies
Investments carried at fair value
Fair Value, Fixed maturity investments	342.2		342.2		267.5
Recurring basis | Level 1 | Debt securities issued by non-U.S. governments and their agencies
Investments carried at fair value
Fair Value, Fixed maturity investments					1.0
Recurring basis | Level 1 | Exchange-listed funds
Investments carried at fair value
Fair Value, Equity securities	75.6		75.6
Recurring basis | Level 1 | Industrial
Investments carried at fair value
Fair Value, Equity securities					4.7
Recurring basis | Level 1 | Consumer goods
Investments carried at fair value
Fair Value, Equity securities					4.3
Recurring basis | Level 1 | Utilities
Investments carried at fair value
Fair Value, Equity securities					1.9
Recurring basis | Level 1 | Other
Investments carried at fair value
Fair Value, Equity securities	10.5		10.5		3.1
Recurring basis | Level 2
Investments carried at fair value
Fair Value, Fixed maturity investments	2,131.3		2,131.3		2,358.5
Fair Value, Equity securities	30.0		30.0		26.9
Other investments carried at fair value	8.4		8.4		(0.8)
Total investments carried at fair value	2,169.7		2,169.7		2,384.6
Other investments carried at net asset value	57.7		57.7		102.8
Total investments	2,227.4		2,227.4		2,487.4
Recurring basis | Level 2 | Corporate debt securities
Investments carried at fair value
Fair Value, Fixed maturity investments	850.5		850.5		942.3
Recurring basis | Level 2 | Residential mortgage-backed securities
Investments carried at fair value
Fair Value, Fixed maturity investments	637.2		637.2		630.0
Recurring basis | Level 2 | Debt securities issued/sponsored by the U.S. Treasury and its agencies
Investments carried at fair value
Fair Value, Fixed maturity investments	93.1		93.1		205.5
Recurring basis | Level 2 | Commercial mortgage-backed securities
Investments carried at fair value
Fair Value, Fixed maturity investments	163.9		163.9		155.6
Recurring basis | Level 2 | Debt securities issued by non-U.S. governments and their agencies
Investments carried at fair value
Fair Value, Fixed maturity investments	88.3		88.3		112.3
Recurring basis | Level 2 | Debt securities issued by U.S. states and political subdivisions
Investments carried at fair value
Fair Value, Fixed maturity investments	56.3		56.3		72.2
Recurring basis | Level 2 | Other debt obligations
Investments carried at fair value
Fair Value, Fixed maturity investments	242.0		242.0		240.6
Recurring basis | Level 2 | Exchange-listed funds
Investments carried at fair value
Fair Value, Equity securities	28.5		28.5		26.9
Recurring basis | Level 2 | Other
Investments carried at fair value
Fair Value, Equity securities	1.5		1.5
Recurring basis | Level 3
Investments carried at fair value
Fair Value, Fixed maturity investments	32.7		32.7		111.6
Other investments carried at fair value	0.7		0.7		12.7
Total investments carried at fair value	33.4		33.4		124.3
Other investments carried at net asset value	13.3		13.3		23.8
Total investments	46.7		46.7		148.1
Percentage of total investments measured at fair value using Level 3 inputs	1.30%		1.30%		4.50%
Recurring basis | Level 3 | Corporate debt securities
Investments carried at fair value
Fair Value, Fixed maturity investments	4.2		4.2		95.4
Recurring basis | Level 3 | Other debt obligations
Investments carried at fair value
Fair Value, Fixed maturity investments	28.5		28.5		16.2
Recurring basis | Total
Investments carried at fair value
Fair Value, Fixed maturity investments	2,506.2		2,506.2		2,738.6
Fair Value, Equity securities	116.1		116.1		40.9
Other investments carried at fair value	9.1		9.1		11.9
Total investments carried at fair value	2,631.4		2,631.4		2,791.4
Other investments carried at net asset value	71.0		71.0		126.6
Total investments	2,702.4		2,702.4		2,918.0
Recurring basis | Total | Corporate debt securities
Investments carried at fair value
Fair Value, Fixed maturity investments	854.7		854.7		1,037.7
Recurring basis | Total | Residential mortgage-backed securities
Investments carried at fair value
Fair Value, Fixed maturity investments	637.2		637.2		630.0
Recurring basis | Total | Debt securities issued/sponsored by the U.S. Treasury and its agencies
Investments carried at fair value
Fair Value, Fixed maturity investments	435.3		435.3		473.0
Recurring basis | Total | Commercial mortgage-backed securities
Investments carried at fair value
Fair Value, Fixed maturity investments	163.9		163.9		155.6
Recurring basis | Total | Debt securities issued by non-U.S. governments and their agencies
Investments carried at fair value
Fair Value, Fixed maturity investments	88.3		88.3		113.3
Recurring basis | Total | Debt securities issued by U.S. states and political subdivisions
Investments carried at fair value
Fair Value, Fixed maturity investments	56.3		56.3		72.2
Recurring basis | Total | Other debt obligations
Investments carried at fair value
Fair Value, Fixed maturity investments	270.5		270.5		256.8
Recurring basis | Total | Exchange-listed funds
Investments carried at fair value
Fair Value, Equity securities	104.1		104.1		26.9
Recurring basis | Total | Industrial
Investments carried at fair value
Fair Value, Equity securities					4.7
Recurring basis | Total | Consumer goods
Investments carried at fair value
Fair Value, Equity securities					4.3
Recurring basis | Total | Utilities
Investments carried at fair value
Fair Value, Equity securities					1.9
Recurring basis | Total | Other
Investments carried at fair value
Fair Value, Equity securities	$ 12.0		$ 12.0		$ 3.1

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Derivative Instruments (Tables)

6 Months Ended

Jun. 30, 2013

Derivative Instruments

Schedule of fair values, notional values and balance sheet location of derivative instruments

		June 30, 2013				December 31, 2012
Derivative Instrument	Balance Sheet Location	Fair Value			Notional Units	Fair Value			Notional Units
Foreign Exchange Contracts:
U.S. Dollars purchased	Other Investments	$	4.8		308.0	$	(1.1	)	165.0
U.S. Dollars sold	Other Investments	(1.7		)	266.5	1.6			155.2
Credit Derivatives	Other Investments	8.1			333.0	(0.4		)	155.1
Interest Rate Contracts	Other Investments	(3.4		)	1,822.0	(0.2		)	137.8
Investment Options and Futures (long)	Other Investments	0.5			0.1	1.0			10.0
LIBOR Swap	Other Investments	0.1			100.0	(1.7		)	100.0
ILW Swaps	Other Assets	2.0			25.0	0.1			3.0
Investment Options and Futures (short)	Liabilities	0.2			13.9	—			—

Schedule of net income (loss) from derivative instruments

	Three Month Periods Ended June 30,						Six Month Periods Ended June 30,
Income (Loss) From Derivative Instruments:	2013			2012			2013			2012
Foreign Exchange Contracts - underwriting activities	$	(6.1	)	$	(0.9	)	$	(10.2	)	$	2.2
Foreign Exchange Contracts - investing activities	3.6			2.4			6.5			(0.9		)
Credit Derivatives	(3.8		)	1.5			(4.3		)	2.1
Interest Rate Contracts	(3.8		)	1.0			1.2			1.9
Investment Options and Futures	(3.1		)	—			(1.6		)	(0.5		)
ILW Swaps	(0.5		)	(0.3		)	(0.6		)	(0.3		)
LIBOR Swap	1.5			(1.6		)	1.4			(0.9		)
Net income (loss) from derivative instruments	$	(12.2	)	$	2.1		$	(7.6	)	$	3.6

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Share-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2013

Share-Based Compensation

Schedule of restricted stock units activity

	Three Month Periods Ended June 30,
	2013					2012
	RSUsOutstanding		Unamortized  Grant Date  Fair Value			RSUs Outstanding		Unamortized Grant Date  Fair Value
Beginning of period	1,486,305		$	17.7		1,376,701		$	13.3
Fixed RSUs Awarded	29,000		0.7			24,000		0.5
Change in Variable RSUs projected for the 2013-2016 cycle	37,807		0.8			—		—
Change in Variable RSUs projected for the 2012-2015 cycle	—		—			238,929		4.0
RSU payments	(29,100	)	—			(43,100	)	—
RSU forfeitures	(3,250	)	—			(8,087	)	—
RSU expense recognized	—		(3.5		)	—		(3.5		)
End of period	1,520,762		$	15.7		1,588,443		$	14.3

	Six Month Periods Ended June 30,
	2013					2012
	RSUsOutstanding		Unamortized  Grant Date  Fair Value			RSUs Outstanding		Unamortized  Grant Date  Fair Value
Beginning of period	1,327,041		$	10.3		761,279		$	4.7
Fixed RSUs Awarded	29,000		0.7			32,000		0.6
Variable RSUs projected to be awarded for the 2013-2016 cycle	536,761		11.5			—		—
Variable RSUs projected to be awarded for the 2012-2015 cycle	—		—			908,034		15.1
RSU payments	(358,753	)	—			(56,100	)	—
RSU forfeitures	(13,287	)	—			(56,770	)	(0.8		)
RSU expense recognized	—		(6.8		)	—		(5.3		)
End of period	1,520,762		15.7			1,588,443		$	14.3

Schedule of restricted stock units outstanding and the unamortized grant date fair value for each award cycle

Award Date and Cycle	RSUs Outstanding	Unamortized Grant Date Fair Value
Four-year RSU awards granted in 2009	6,250	$	—
Five-year RSU awards granted in 2009	1,500	—
Four-year RSU awards granted in 2010	116,180	0.3
Three-year RSU awards granted in 2011	20,000	0.1
Five-year RSU awards granted in 2011	30,000	0.2
Three-year RSU awards granted in 2012	4,000	—
Four-year RSU awards granted in 2012	770,171	6.1
Five-year RSU awards granted in 2012	8,900	0.1
One-year RSU awards granted in 2013	21,000	0.5
Three-year RSU awards granted in 2013	6,000	0.1
Four-year RSU awards granted in 2013 (those awards in their Initial Award Period)	536,761	8.3
Total RSUs outstanding at June 30, 2013	1,520,762	$	15.7

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Reinsurance (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013 item	Jun. 30, 2012
Premiums earned:
Ceded	$ 32.1	$ 29.7	$ 53.0	$ 53.3
Minimum number of lines of business covering excess-of-loss contracts			1

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Regulation and Capital Requirements (Details 2) In Millions, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2013	Dec. 31, 2012 MCL USD ($)	Dec. 31, 2012 Montpelier Underwriting Agencies Limited USD ($)	Jun. 30, 2013 Syndicate 5151 USD ($)	Dec. 31, 2012 Syndicate 5151 USD ($)	Dec. 31, 2013 Syndicate 5151 Montpelier Underwriting Agencies Limited GBP (£)
Regulation and Capital Requirements
Period for distribution of profits held to MCL	3 years
Regulation and Capital Requirements
Net assets			$ 1.3
Capital requirement		149.3	0.9
Percentage of stamp capacity						100.00%
Stamp capacity						180
Investment securities held within the Premiums Trust Funds				279.7	269.3
Cash and cash equivalents held within the Premiums Trust Funds				55.5	102.6
Statutory net assets in excess of capital requirements		149.6
Statutory net income		$ 26.8

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Segment Reporting (Details 3) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Net earned premiums, by line of business and reportable segment and by geography
Net premiums earned	$ 138,900,000	$ 146,400,000	$ 298,600,000	$ 306,900,000
Percentage of net premiums earned by a geographic area	100.00%	100.00%	100.00%	100.00%
U.S. and Canada
Net earned premiums, by line of business and reportable segment and by geography
Net premiums earned	81,600,000	79,100,000	170,800,000	167,600,000
Percentage of net premiums earned by a geographic area	59.00%	54.00%	57.00%	55.00%
Worldwide
Net earned premiums, by line of business and reportable segment and by geography
Net premiums earned	22,300,000	32,100,000	52,100,000	69,700,000
Percentage of net premiums earned by a geographic area	16.00%	22.00%	17.00%	23.00%
Western Europe, excluding the U.K. and Ireland
Net earned premiums, by line of business and reportable segment and by geography
Net premiums earned	7,600,000	9,300,000	16,600,000	16,300,000
Percentage of net premiums earned by a geographic area	5.00%	6.00%	6.00%	5.00%
Worldwide, excluding U.S. and Canada
Net earned premiums, by line of business and reportable segment and by geography
Net premiums earned	8,700,000	3,800,000	16,400,000	10,400,000
Percentage of net premiums earned by a geographic area	6.00%	3.00%	5.00%	3.00%
Japan
Net earned premiums, by line of business and reportable segment and by geography
Net premiums earned	5,600,000	7,700,000	11,700,000	12,600,000
Percentage of net premiums earned by a geographic area	4.00%	5.00%	4.00%	4.00%
U.K. and Ireland
Net earned premiums, by line of business and reportable segment and by geography
Net premiums earned	5,300,000	5,400,000	10,900,000	11,100,000
Percentage of net premiums earned by a geographic area	4.00%	4.00%	4.00%	4.00%
Other
Net earned premiums, by line of business and reportable segment and by geography
Net premiums earned	7,800,000	9,000,000	20,100,000	19,200,000
Percentage of net premiums earned by a geographic area	6.00%	6.00%	7.00%	6.00%
Property Catastrophe - Treaty
Net earned premiums, by line of business and reportable segment and by geography
Net premiums earned	66,400,000	59,500,000	132,900,000	122,800,000
Property Specialty - Treaty
Net earned premiums, by line of business and reportable segment and by geography
Net premiums earned	13,100,000	13,100,000	25,900,000	25,300,000
Other Specialty - Treaty
Net earned premiums, by line of business and reportable segment and by geography
Net premiums earned	27,700,000	31,500,000	68,600,000	69,900,000
Property and Specialty Individual Risk
Net earned premiums, by line of business and reportable segment and by geography
Net premiums earned	31,700,000	42,300,000	71,200,000	88,900,000
Montpelier Bermuda
Net earned premiums, by line of business and reportable segment and by geography
Net premiums earned	84,100,000	84,900,000	185,300,000	183,200,000
Montpelier Bermuda | Property Catastrophe - Treaty
Net earned premiums, by line of business and reportable segment and by geography
Net premiums earned	59,200,000	55,700,000	121,200,000	116,500,000
Montpelier Bermuda | Property Specialty - Treaty
Net earned premiums, by line of business and reportable segment and by geography
Net premiums earned	11,700,000	11,500,000	23,100,000	22,000,000
Montpelier Bermuda | Other Specialty - Treaty
Net earned premiums, by line of business and reportable segment and by geography
Net premiums earned	10,400,000	10,300,000	29,300,000	29,300,000
Montpelier Bermuda | Property and Specialty Individual Risk
Net earned premiums, by line of business and reportable segment and by geography
Net premiums earned	2,800,000	7,400,000	11,700,000	15,400,000
Montpelier Syndicate 5151
Net earned premiums, by line of business and reportable segment and by geography
Net premiums earned	49,000,000	52,700,000	103,400,000	103,500,000
Montpelier Syndicate 5151 | Property Catastrophe - Treaty
Net earned premiums, by line of business and reportable segment and by geography
Net premiums earned	1,500,000	3,400,000	1,600,000	5,700,000
Montpelier Syndicate 5151 | Property Specialty - Treaty
Net earned premiums, by line of business and reportable segment and by geography
Net premiums earned	1,700,000	1,600,000	3,100,000	3,300,000
Montpelier Syndicate 5151 | Other Specialty - Treaty
Net earned premiums, by line of business and reportable segment and by geography
Net premiums earned	17,300,000	21,200,000	39,300,000	39,900,000
Montpelier Syndicate 5151 | Property and Specialty Individual Risk
Net earned premiums, by line of business and reportable segment and by geography
Net premiums earned	28,500,000	26,500,000	59,400,000	54,600,000
Blue Capital
Net earned premiums, by line of business and reportable segment and by geography
Net premiums earned	5,500,000	400,000	9,300,000	400,000
Blue Capital | Property Catastrophe - Treaty
Net earned premiums, by line of business and reportable segment and by geography
Net premiums earned	5,500,000	400,000	9,300,000	400,000
MUSIC Run-Off
Net earned premiums, by line of business and reportable segment and by geography
Net premiums earned	300,000	8,400,000	600,000	19,800,000
MUSIC Run-Off | Property and Specialty Individual Risk
Net earned premiums, by line of business and reportable segment and by geography
Net premiums earned	300,000	8,400,000	600,000	19,800,000
Corporate and Other | Property Catastrophe - Treaty
Net earned premiums, by line of business and reportable segment and by geography
Net premiums earned	200,000		800,000	200,000
Corporate and Other | Property Specialty - Treaty
Net earned premiums, by line of business and reportable segment and by geography
Net premiums earned	(300,000)		(300,000)
Corporate and Other | Other Specialty - Treaty
Net earned premiums, by line of business and reportable segment and by geography
Net premiums earned				700,000
Corporate and Other | Property and Specialty Individual Risk
Net earned premiums, by line of business and reportable segment and by geography
Net premiums earned	$ 100,000		$ (500,000)	$ (900,000)

XML

Debt, Letter of Credit Facilities and Trust Arrangements (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended			0 Months Ended	3 Months Ended	6 Months Ended		0 Months Ended	3 Months Ended	6 Months Ended	12 Months Ended		0 Months Ended	1 Months Ended	3 Months Ended		6 Months Ended		12 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012	Oct. 05, 2012 2022 Senior Notes	Jun. 30, 2013 2022 Senior Notes	Jun. 30, 2013 2022 Senior Notes	Dec. 31, 2012 2022 Senior Notes	Nov. 05, 2012 2013 Senior notes	Jun. 30, 2012 2013 Senior notes	Jun. 30, 2012 2013 Senior notes	Dec. 31, 2003 2013 Senior notes	Jun. 30, 2013 2013 Senior notes	Feb. 07, 2012 Trust Preferred Securities	Jan. 31, 2006 Trust Preferred Securities	Jun. 30, 2013 Trust Preferred Securities	Jun. 30, 2012 Trust Preferred Securities	Jun. 30, 2013 Trust Preferred Securities	Jun. 30, 2012 Trust Preferred Securities	Dec. 31, 2011 Trust Preferred Securities	Dec. 31, 2012 Trust Preferred Securities	Jun. 30, 2013 Syndicated Secured Facilities	Jun. 30, 2013 Four Year Committed Facility	Jun. 30, 2013 Four Year Committed Facility Minimum	Jun. 30, 2013 Four Year Committed Facility Maximum	Jun. 30, 2013 Bilateral Facility
Debt and other financing arrangements
Increase in borrowings						$ 300.0							$ 250.0			$ 100.0
Principal amount of debt outstanding										227.9				227.9
Fixed rate of interest (as a percent)							4.70%	4.70%					6.125%				4.905%		4.905%
Percentage of par value at which debt was issued						99.682%
Effective yield to investors (as a percent)								4.74%
Proceeds from issuance of Senior Unsecured Debt, net of issuance discounts and debt issuance costs						296.4
Debt issuance costs capitalized						2.7
Carrying value of debt	399.1		399.1		399.1		299.1	299.1	299.1								100.0		100.0			100.0
Interest incurred on debt	4.7	4.8	9.4	9.8			3.5	7.0			3.5	7.0					1.1	1.1	2.1	2.2
Principal amount of debt redeemed										237.6
Redemption price, as percentage of principal amount of debt instrument										104.20%
Interest paid								7.4			7.0								2.1	2.2
Floating interest rate, base rate																					3-month LIBOR
Floating interest rate, basis points added to base rate (as a percent)																					3.80%
Floating rate, low end of range (as a percent)																			4.07%	4.26%
Floating rate, high end of range (as a percent)																			4.11%	4.38%
Swap agreement term															5 years
Letter of Credit Facilities
Cash and investments collateral for letter of credit facilities	32.1		32.1		128.0
Total Capacity																								75.0			75.0
Amount Drawn																								$ 2.3			$ 23.0
Debt leverage ratio, maximum (as a percent)																							30.00%
Annual commitment fee on drawn balances (as a percent)																									0.25%	0.35%	0.45%
Annual commitment fee on undrawn balances (as a percent)																								0.125%

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Millions, except Share data, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
CONSOLIDATED BALANCE SHEETS
Fixed maturity investments, amortized cost (in dollars)	$ 2,519.4	$ 2,662.2
Equity securities, cost (in dollars)	114.7	38.1
Other investments, cost (in dollars)	$ 72.5	$ 143.1
Non-cumulative preferred shares ("Preferred Shares"), issued shares	6,000,000	6,000,000
Common Shares, shares issued	52,183,346	56,711,141
Treasury shares, shares	1,163,239	1,441,451

XML

Segment Reporting

6 Months Ended

Jun. 30, 2013

Segment Reporting

Segment Reporting

NOTE 8.  Segment Reporting

The Company currently operates through four reportable segments: Montpelier Bermuda, Montpelier Syndicate 5151, Blue Capital and MUSIC Run-Off.  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 intercompany 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, certain intermediate holding and service companies and eliminations relating to intercompany reinsurance and support services are collectively referred to as “Corporate and Other.”

The following table summarizes Montpelier’s identifiable assets by segment as of June 30, 2013 and December 31, 2012:

	June 30, 2013		December 31, 2012
Montpelier Bermuda	$	3,109.0	$	3,126.5
Montpelier Syndicate 5151	555.7		552.9
Blue Capital	224.2		74.0
MUSIC Run-Off	39.9		48.9
Corporate and Other, including intercompany eliminations	6.9		7.8
Total assets	$	3,935.7	$	3,810.1

A summary of Montpelier’s statements of operations by segment for the three month period ended June 30, 2013 follows:

Three Month Period Ended June 30, 2013	Montpelier Bermuda			Montpelier Syndicate 5151			Blue Capital			MUSIC Run-Off			Corporate and Other			Total
Gross premiums written	$	160.6		$	58.9		$	22.6		$	0.3		$	0.3		$	242.7
Ceded reinsurance premiums	(32.3		)	(9.3		)	(3.0		)	—			(0.3		)	(44.9		)
Net premiums written	128.3			49.6			19.6			0.3			—			197.8
Change in net unearned premiums	(44.2		)	(0.6		)	(14.1		)	—			—			(58.9		)
Net premiums earned	84.1			49.0			5.5			0.3			—			138.9
Loss and LAE	(18.9		)	(25.4		)	(2.0		)	(0.5		)	—			(46.8		)
Acquisition costs	(10.0		)	(11.9		)	(0.6		)	(0.1		)	—			(22.6		)
General and administrative expenses	(8.6		)	(7.9		)	(0.9		)	—			(9.0		)	(26.4		)
Underwriting income	46.6			3.8			2.0			(0.3		)	(9.0		)	43.1
Net investment income	15.2			1.3			—			0.2			—			16.7
Net investment and foreign exchange losses	(61.0		)	(4.7		)	—			(0.7		)	(0.1		)	(66.5		)
Net loss from derivative instruments	(14.2		)	0.5			—			—			1.5			(12.2		)
Other revenue	(0.7		)	(0.2		)	0.2			—			0.7			—
Interest and other financing expenses	—			(0.5		)	—			—			(4.2		)	(4.7		)
Loss before income taxes	$	(14.1	)	$	0.2		$	2.2		$	(0.8	)	$	(11.1	)	$	(23.6	)

A summary of Montpelier’s statements of operations by segment for the three month period ended June 30, 2012 follows:

Three Month Period Ended June 30, 2012	Montpelier  Bermuda			Montpelier Syndicate 5151			Blue Capital			MUSIC Run-Off			Corporate and Other			Total
Gross premiums written	$	186.9		$	63.4		$	2.4		$	0.2		$	0.6		$	253.5
Ceded reinsurance premiums	(40.5		)	(1.6		)	—			—			(0.6		)	(42.7		)
Net premiums written	146.4			61.8			2.4			0.2			—			210.8
Change in unearned premiums	(61.5		)	(9.1		)	(2.0		)	8.2			—			(64.4		)
Net premiums earned	84.9			52.7			0.4			8.4			—			146.4
Loss and LAE	(19.5		)	(32.2		)	—			(5.5		)	—			(57.2		)
Acquisition costs	(8.9		)	(11.8		)	—			(2.9		)	—			(23.6		)
General and administrative expenses	(11.0		)	(11.2		)	(0.8		)	—			(8.0		)	(31.0		)
Underwriting income	45.5			(2.5		)	(0.4		)	—			(8.0		)	34.6
Net investment income	16.4			0.5			—			0.3			—			17.2
Net investment and foreign exchange	8.9			7.5			—			—			(0.2		)	16.2
Net income from derivative instruments	4.1			(0.2		)	—			—			(1.8		)	2.1
Other revenue	—			0.1			—			—			0.1			0.2
Interest and other financing expenses	(0.2		)	(0.7		)	—			—			(3.9		)	(4.8		)
Income before income taxes	$	74.7		$	4.7		$	(0.4	)	$	0.3		$	(13.8	)	$	65.5

A summary of Montpelier’s statements of operations by segment for the six month period ended June 30, 2013 follows:

Six Month Period Ended June 30, 2013	Montpelier Bermuda			Montpelier Syndicate 5151			Blue Capital			MUSIC Run-Off			Corporate and Other			Total
Gross premiums written	$	336.5		$	128.7		$	37.2		$	0.6		$	0.9		$	503.9
Ceded reinsurance premiums	(58.2		)	(18.0		)	(3.0		)	—			(0.9		)	(80.1		)
Net premiums written	278.3			110.7			34.2			0.6			—			423.8
Change in net unearned premiums	(93.0		)	(7.3		)	(24.9		)	—			—			(125.2		)
Net premiums earned	185.3			103.4			9.3			0.6			—			298.6
Loss and LAE	(26.2		)	(68.5		)	(2.0		)	(0.7		)	—			(97.4		)
Acquisition costs	(18.8		)	(24.8		)	(0.9		)	(0.2		)	—			(44.7		)
General and administrative expenses	(17.8		)	(16.2		)	(1.6		)	—			(17.7		)	(53.3		)
Underwriting income	122.5			(6.1		)	4.8			(0.3		)	(17.7		)	103.2
Net investment income	30.0			2.7			—			0.4			—			33.1
Net investment and foreign exchange losses	(69.1		)	25.1			—			(0.8		)	(1.3		)	(46.1		)
Net loss from derivative instruments	(6.7		)	(2.3		)	—			—			1.4			(7.6		)
Other revenue	—			—			0.7			—			(0.7		)	—
Interest and other financing expenses	(0.1		)	(1.0		)	—			—			(8.3		)	(9.4		)
Income before income taxes	$	76.6		$	18.4		$	5.5		$	(0.7	)	$	(26.6	)	$	73.2

A summary of Montpelier’s statements of operations by segment for the six month period ended June 30, 2012 follows:

Six Month Period Ended June 30, 2012	Montpelier Bermuda			Montpelier Syndicate 5151			Blue Capital			MUSIC Run-Off			Corporate and Other			Total
Gross premiums written	$	367.6		$	138.1		$	2.4		$	1.5		$	3.6		$	513.2
Ceded reinsurance premiums	(67.1		)	(11.7		)	—			—			(3.6		)	(82.4		)
Net premiums written	300.5			126.4			2.4			1.5			—			430.8
Change in unearned premiums	(117.3		)	(22.9		)	(2.0		)	18.3			—			(123.9		)
Net premiums earned	183.2			103.5			0.4			19.8			—			306.9
Loss and LAE	(35.7		)	(51.8		)	—			(13.7		)	—			(101.2		)
Acquisition costs	(21.1		)	(20.4		)	—			(6.9		)	—			(48.4		)
General and administrative expenses	(20.9		)	(19.8		)	(0.8		)	—			(15.2		)	(56.7		)
Underwriting income	105.5			11.5			(0.4		)	(0.8		)	(15.2		)	100.6
Net investment income	33.2			1.0			—			0.6			—			34.8
Net investment and foreign exchange	45.2			0.6			—			0.3			(0.1		)	46.0
Net income from derivative instruments	4.9			(0.2		)	—			—			(1.1		)	3.6
Other revenue	0.1			0.2			—			0.2			0.2			0.7
Interest and other financing expenses	(0.6		)	(0.7		)	—			—			(8.5		)	(9.8		)
Income before income taxes	$	188.3		$	12.4		$	(0.4	)	$	0.3		$	(24.7	)	$	175.9

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 June 30, 2013 and 2012:

Three Month Period Ended June 30, 2013	Montpelier Bermuda		Montpelier Syndicate 5151		Blue Capital		MUSIC Run-Off		Corporate and Other (1)			Total
Property Catastrophe - Treaty	$	120.0	$	0.9	$	22.6	$	—	$	0.3		$	143.8
Property Specialty - Treaty	12.0		0.4		—		—		0.1			12.5
Other Specialty - Treaty	16.2		15.4		—		—		(0.1		)	31.5
Property and Specialty Individual Risk	12.4		42.2		—		0.3		—			54.9
Total gross premiums written	$	160.6	$	58.9	$	22.6	$	0.3	$	0.3		$	242.7

Three Month Period Ended June 30, 2012	Montpelier Bermuda		Montpelier Syndicate 5151		Blue Capital		MUSIC Run-Off		Corporate and Other (1)		Total
Property Catastrophe - Treaty	$	148.0	$	0.9	$	2.4	$	—	$	0.6	$	151.9
Property Specialty - Treaty	12.3		0.5		—		—		—		12.8
Other Specialty - Treaty	11.7		22.9		—		—		—		34.6
Property and Specialty Individual Risk	14.9		39.1		—		0.2		—		54.2
Total gross premiums written	$	186.9	$	63.4	$	2.4	$	0.2	$	0.6	$	253.5

(1) Represents intercompany excess-of-loss reinsurance arrangements between Montpelier Bermuda and Montpelier Syndicate 5151 and between MUSIC Run-Off and Montpelier Syndicate 5151, each of which is eliminated in consolidation.

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.

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 June 30,
	2013				2012
U.S. and Canada	$	162.2	67	%	$	165.4	65	%
Worldwide (1)	45.1		18		53.1		21
Japan	17.0		7		20.6		8
U.K. and Ireland	4.3		2		3.6		1
Worldwide, excluding U.S. and Canada (2)	4.2		2		0.6		—
Western Europe, excluding the U.K. and Ireland	1.4		1		3.7		2
Other	8.5		3		6.5		3
Total gross premiums written	$	242.7	100	%	$	253.5	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.

The following tables present Montpelier’s gross premiums written, by line of business and reportable segment, during the six month periods ended June 30, 2013 and 2012:

Six Month Period Ended June 30, 2013	Montpelier Bermuda		Montpelier Syndicate 5151		Blue Capital		MUSIC Run-Off		Corporate and Other (1)			Total
Property Catastrophe - Treaty	$	243.2	$	4.2	$	37.2	$	—	$	0.9		$	285.5
Property Specialty - Treaty	24.0		3.0		—		—		0.1			27.1
Other Specialty - Treaty	46.9		35.3		—		—		(0.1		)	82.1
Property and Specialty Individual Risk	22.4		86.2		—		0.6		—			109.2
Total gross premiums written	$	336.5	$	128.7	$	37.2	$	0.6	$	0.9		$	503.9

Six Month Period Ended June 30, 2012	Montpelier Bermuda		Montpelier Syndicate 5151		Blue Capital		MUSIC Run-Off		Corporate and Other (1)		Total
Property Catastrophe - Treaty	$	275.7	$	9.0	$	2.4	$	—	$	3.6	$	290.7
Property Specialty - Treaty	23.5		2.8		—		—		—		26.3
Other Specialty - Treaty	45.2		46.2		—		—		—		91.4
Property and Specialty Individual Risk	23.2		80.1		—		1.5		—		104.8
Total gross premiums written	$	367.6	$	138.1	$	2.4	$	1.5	$	3.6	$	513.2

(1) Represents intercompany excess-of-loss reinsurance arrangements between Montpelier Bermuda and Montpelier Syndicate 5151 and between MUSIC Run-Off and Montpelier Syndicate 5151, each of which is eliminated in consolidation.

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

	Six Month Periods Ended June 30,
	2013				2012
U.S. and Canada	$	282.0	56	%	$	278.8	54	%
Worldwide (1)	112.0		22		128.6		25
Worldwide, excluding U.S. and Canada (2)	27.0		5		18.3		4
Western Europe, excluding the U.K. and Ireland	26.6		5		25.0		5
Japan	19.1		4		22.8		4
U.K. and Ireland	14.1		3		16.1		3
Other	23.1		5		23.6		5
Total gross premiums written	$	503.9	100	%	$	513.2	100	%

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 June 30, 2013 and 2012:

Three Month Period Ended June 30, 2013	Montpelier Bermuda		Montpelier Syndicate 5151		Blue Capital		MUSIC Run-Off		Corporate and Other (1)			Total
Property Catastrophe - Treaty	$	59.2	$	1.5	$	5.5	$	—	$	0.2		$	66.4
Property Specialty - Treaty	11.7		1.7		—		—		(0.3		)	13.1
Other Specialty - Treaty	10.4		17.3		—		—		—			27.7
Property and Specialty Individual Risk	2.8		28.5		—		0.3		0.1			31.7
Total net premiums earned	$	84.1	$	49.0	$	5.5	$	0.3	$	—		$	138.9

Three Month Period Ended June 30, 2012	Montpelier Bermuda		Montpelier Syndicate 5151		Blue Capital		MUSIC Run-Off		Corporate and Other (1)		Total
Property Catastrophe - Treaty	$	55.7	$	3.4	$	0.4	$	—	$	—	$	59.5
Property Specialty - Treaty	11.5		1.6		—		—		—		13.1
Other Specialty - Treaty	10.3		21.2		—		—		—		31.5
Property and Specialty Individual Risk	7.4		26.5		—		8.4		—		42.3
Total net premiums earned	$	84.9	$	52.7	$	0.4	$	8.4	$	—	$	146.4

(1) Represents intercompany excess-of-loss reinsurance arrangement between Montpelier Bermuda and Montpelier Syndicate 5151 which is eliminated in consolidation.

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

	Three Month Periods Ended June 30,
	2013				2012
U.S. and Canada	$	81.6	59	%	$	79.1	54	%
Worldwide (1)	22.3		16		32.1		22
Worldwide, excluding U.S. and Canada (2)	8.7		6		3.8		3
Western Europe, excluding the U.K. and Ireland	7.6		5		9.3		6
Japan	5.6		4		7.7		5
U.K. and Ireland	5.3		4		5.4		4
Other	7.8		6		9.0		6
Total net earned premiums	$	138.9	100	%	$	146.4	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.

The following tables present Montpelier’s net earned premiums, by line of business and reportable segment, during the six month periods ended June 30, 2013 and 2012:

Six Month Period Ended June 30, 2013	Montpelier Bermuda		Montpelier Syndicate 5151		Blue Capital		MUSIC Run-Off		Corporate and Other (1)			Total
Property Catastrophe - Treaty	$	121.2	$	1.6	$	9.3	$	—	$	0.8		$	132.9
Property Specialty - Treaty	23.1		3.1		—		—		(0.3		)	25.9
Other Specialty - Treaty	29.3		39.3		—		—		—			68.6
Property and Specialty Individual Risk	11.7		59.4		—		0.6		(0.5		)	71.2
Total net premiums earned	$	185.3	$	103.4	$	9.3	$	0.6	$	—		$	298.6

Six Month Period Ended June 30, 2012	Montpelier Bermuda		Montpelier Syndicate 5151		Blue Capital		MUSIC Run-Off		Corporate and Other (1)			Total
Property Catastrophe - Treaty	$	116.5	$	5.7	$	0.4	$	—	$	0.2		$	122.8
Property Specialty - Treaty	22.0		3.3		—		—		—			25.3
Other Specialty - Treaty	29.3		39.9		—		—		0.7			69.9
Property and Specialty Individual Risk	15.4		54.6		—		19.8		(0.9		)	88.9
Total net premiums earned	$	183.2	$	103.5	$	0.4	$	19.8	$	—		$	306.9

(1) Represents intercompany excess-of-loss reinsurance arrangements between Montpelier Bermuda and Montpelier Syndicate 5151 and between MUSIC Run-Off and Montpelier Syndicate 5151, each of which is eliminated in consolidation.

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

	Six Month Periods Ended June 30,
	2013				2012
U.S. and Canada	$	170.8	57	%	$	167.6	55	%
Worldwide (1)	52.1		17		69.7		23
Western Europe, excluding the U.K. and Ireland	16.6		6		16.3		5
Worldwide, excluding U.S. and Canada (2)	16.4		5		10.4		3
Japan	11.7		4		12.6		4
U.K. and Ireland	10.9		4		11.1		4
Other	20.1		7		19.2		6
Total net earned premiums	$	298.6	100	%	$	306.9	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.

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (USD $) In Millions, unless otherwise specified	Total	Preferred Shares	Common Shares, at par value	Additional paid-in capital	Common Shares held in treasury	Retained earnings	Accum. other comprehensive loss	Non-controlling interest
Balances at Dec. 31, 2011	$ 1,549.3	$ 150.0	$ 0.1	$ 1,165.6	$ (22.0)	$ 259.7	$ (4.1)
Increase (Decrease) in Shareholders' Equity
Net income (loss)	175.9					175.9
Net change in foreign currency translation	(1.2)						(1.2)
Repurchases of Common Shares	(85.6)			(76.6)	(9.0)
Issuances of Common Shares from treasury				(0.8)	0.8
Expense recognized for RSUs	5.3			5.3
RSUs withheld for income taxes	(0.2)			(0.2)
Dividends declared on Common Shares	(12.1)					(12.1)
Dividends declared on Preferred Shares	(6.7)					(6.7)
Balances at Jun. 30, 2012	1,624.7	150.0	0.1	1,093.3	(30.2)	416.8	(5.3)
Balances at Dec. 31, 2012	1,629.4	150.0	0.1	1,056.0	(23.1)	449.7	(3.3)
Increase (Decrease) in Shareholders' Equity
Net income (loss)	73.4					71.5		1.9
Net change in foreign currency translation	(3.2)						(3.2)
Repurchases of Common Shares	(113.6)			(113.6)
Issuances of Common Shares from treasury				(4.9)	4.9
Expense recognized for RSUs	6.8			6.8
RSUs withheld for income taxes	(2.1)			(2.1)
Third party investment in Blue Capital	97.4							97.4
Dividends declared on Common Shares	(12.1)					(12.1)
Dividends declared on Preferred Shares	(6.7)					(6.7)
Balances at Jun. 30, 2013	$ 1,669.3	$ 150.0	$ 0.1	$ 942.2	$ (18.2)	$ 502.4	$ (6.5)	$ 99.3

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Income Taxes (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Reconciliation of actual income taxes to the amount calculated using the expected tax rate of zero under Bermuda law
Income tax benefit	$ 0.4	$ 0	$ 0.2	$ 0
Income taxes paid	0.1		0.1
Pretax income (losses)	(23.6)	65.5	73.2	175.9
Maximum
Reconciliation of actual income taxes to the amount calculated using the expected tax rate of zero under Bermuda law
Income taxes paid		0.1		0.1
Bermuda
Reconciliation of actual income taxes to the amount calculated using the expected tax rate of zero under Bermuda law
Pretax income (losses)	(21.1)	63.8	63.0	175.9
United Kingdom
Reconciliation of actual income taxes to the amount calculated using the expected tax rate of zero under Bermuda law
Income tax benefit	0.4	0	0.2	0
Income taxes paid	(0.4)		(0.2)
Pretax income (losses)	(2.5)	1.7	10.2	(0.1)
Deferred tax asset valuation allowance	1.0		1.0		3.8
Deferred tax asset	1.5		1.5		4.4
United States
Reconciliation of actual income taxes to the amount calculated using the expected tax rate of zero under Bermuda law
Pretax income (losses)	0	0	0	0.1
Deferred tax asset	14.0		14.0		14.0
Maximum amount of state and local income taxes	0.1	0.1	0.1	0.1
Switzerland
Reconciliation of actual income taxes to the amount calculated using the expected tax rate of zero under Bermuda law
Maximum amount of income tax expense (benefit)	$ 0.1	$ 0.1	$ 0.1	$ 0.1

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CONSOLIDATED BALANCE SHEETS (USD $) In Millions, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Assets
Fixed maturity investments, at fair value (amortized cost: $2,519.4 and $2,662.2)	$ 2,506.2	$ 2,738.6
Equity securities, at fair value (cost: $114.7 and $38.1)	116.1	40.9
Other investments (cost: $72.5 and $143.1)	80.1	138.5
Total investments	2,702.4	2,918.0
Cash and cash equivalents	438.7	330.8
Restricted cash	115.6	70.6
Reinsurance recoverable on unpaid losses	80.3	102.7
Reinsurance recoverable on paid losses	26.8	6.7
Insurance and reinsurance premiums receivable	341.3	222.9
Unearned reinsurance premiums ceded	48.9	22.2
Deferred insurance and reinsurance acquisition costs	60.2	48.4
Accrued investment income	14.7	15.2
Unsettled sales of investments	79.9	48.9
Other assets	26.9	23.7
Total Assets	3,935.7	3,810.1
Liabilities
Loss and loss adjustment expense reserves	1,003.7	1,112.4
Debt	399.1	399.1
Unearned insurance and reinsurance premiums	413.9	270.1
Insurance and reinsurance balances payable	89.9	54.0
Liability for investment securities sold short	110.9	138.8
Unsettled purchases of investments	206.9	148.7
Accounts payable, accrued expenses and other liabilities	42.0	57.6
Total Liabilities	2,266.4	2,180.7
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 52,183,346 and 56,711,141 shares	0.1	0.1
Additional paid-in capital	942.2	1,056.0
Common Shares held in treasury, at cost: 1,163,239 and 1,441,451 shares	(18.2)	(23.1)
Retained earnings	502.4	449.7
Accumulated other comprehensive loss	(6.5)	(3.3)
Total Shareholders' Equity available to the Company	1,570.0	1,629.4
Non-controlling interest	99.3
Total Shareholders' Equity	1,669.3	1,629.4
Total Liabilities and Shareholders' Equity	$ 3,935.7	$ 3,810.1

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Basic and Diluted Earnings (Loss) Per Common Share (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Earnings (loss) per Common Share numerator:
Net income (loss) available to the Company's common shareholders	$ (27.3)	$ 62.1	$ 64.8	$ 169.2
Less: net earnings allocated to participating securities		(1.4)	(1.3)	(3.7)
Net income (loss) available to the Company's common shareholders	$ (27.3)	$ 60.7	$ 63.5	$ 165.5
Average Common Shares outstanding, Basic (in shares)	52.1	57.3	53.3	58.7
Basic and diluted earnings (loss) per Common Share (in dollars per share)	$ (0.52)	$ 1.06	$ 1.19	$ 2.82

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Shareholders' Equity (Tables)

6 Months Ended

Jun. 30, 2013

Shareholders' Equity

Summary of the Company's Common Share activity

	Six Month Periods Ended June 30,
(in Common Shares)	2013		2012
Beginning Common Shares outstanding	55,269,690		60,864,174
Acquisitions of Common Shares:
Common Shares repurchased and retired	(4,527,795	)	(3,917,939	)
Common Shares repurchased and placed in treasury	—		(431,800	)
Issuances of Common Shares:
Issuances in satisfaction of vested Restricted Share Unit (“RSU”) obligations	278,212		47,562
Ending Common Shares outstanding	51,020,107		56,561,997

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Basis of Presentation and Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2013

Basis of Presentation and Summary of Significant Accounting Policies

Schedule of foreign currency exchange rates

Currency	Opening Rate January 1, 2013	Closing Rate June 30, 2013	Opening Rate January 1, 2012	Closing Rate June 30, 2012
British Pound (GBP)	1.6234	1.5212	1.5617	1.5570
Swiss Franc (CHF)	1.0924	1.0583	1.0634	1.0546

Summary of movements in the non-controlling interest balance

	Three Month Periods Ended June 30,				Six Month Periods Ended June 30,
	2013		2012		2013		2012
Non-controlling interest - beginning	$	32.6	$	—	$	—	$	—
Amounts invested into the BCGR Cell on behalf of third parties	66.0		—		97.4		—
Income attributable to non-controlling interest	0.7		—		1.9		—
Non-controlling interest - ending	$	99.3	$	—	$	99.3	$	—

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Investments (Details 6) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended														3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended		3 Months Ended	6 Months Ended		3 Months Ended	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013 Blue Water Trusts	Dec. 31, 2012 Blue Water Trusts	Jun. 30, 2013 MUSIC Trust	Dec. 31, 2012 MUSIC Trust	Jun. 30, 2013 Reinsurance Trust	Dec. 31, 2012 Reinsurance Trust	Jun. 30, 2013 FL Trust	Dec. 31, 2012 FL Trust	Jun. 30, 2013 Lloyd's Capital Trust	Dec. 31, 2012 Lloyd's Capital Trust	Jun. 30, 2013 Premiums Trust Funds	Dec. 31, 2012 Premiums Trust Funds	Jun. 30, 2013 Fixed maturity investments	Jun. 30, 2012 Fixed maturity investments	Jun. 30, 2013 Fixed maturity investments	Jun. 30, 2012 Fixed maturity investments	Jun. 30, 2013 Cash and cash equivalents	Jun. 30, 2012 Cash and cash equivalents	Jun. 30, 2013 Cash and cash equivalents	Jun. 30, 2012 Cash and cash equivalents	Jun. 30, 2012 Equity securities	Jun. 30, 2013 Equity securities	Jun. 30, 2012 Equity securities	Jun. 30, 2012 Other investments	Jun. 30, 2013 Other investments	Jun. 30, 2012 Other investments	Jun. 30, 2013 BCGR Listed Fund
Net Investment Income
Investment income	$ 18.8	$ 18.7	$ 37.2	$ 37.8													$ 18.7	$ 18.0	$ 36.7	$ 36.4	$ 0.1	$ 0.1	$ 0.2	$ 0.2	$ 0.1	$ 0.2	$ 0.2	$ 0.5	$ 0.1	$ 1.0
Investment expenses	(2.1)	(1.5)	(4.1)	(3.0)
Net investment income	16.7	17.2	33.1	34.8
Assets Held in Trust
Fair value of all assets held in the trust					165.6	22.5	39.8	45.4	335.3	338.2	25.9	26.0	157.2	149.6	335.2	371.9
Sales and Maturities of Investments
Sales of investments			2,973.6	1,840.1																											47.3
Maturities, calls and paydowns of investments			224.9	363.9
Non-cash exchanges or involuntary sales of investment securities			0
Pending Securities Litigation
Amount to be returned, if Plaintiffs fully prevail connection with Tribune LBO suits			$ 4.4

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Regulation and Capital Requirements (Details) (USD $) In Millions, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2013	Dec. 31, 2012	Dec. 31, 2013
Regulation and Capital Requirements
Dividend available for distribution without prior approval of BMA, percentage of reduction to prior year statutory capital	15.00%
Dividend available for distribution without prior approval of BMA as percentage of prior year statutory capital and surplus	25.00%
Blue Water Trusts
Regulation and Capital Requirements
Restricted net assets other than those associated with collateral requirements	$ 0
Bermuda
Regulation and Capital Requirements
Actual Statutory Capital and Surplus		1,820.8
Principal differences between Statutory Capital and Surplus and net assets		170.9
Restricted net assets		1,365.6
BSCR		667.0
Statutory net income (loss)		281.6
Amount available for dividend payments		410.0	455.2
Dividend declared and paid	0	75.0
Bermuda | Blue Water Trusts
Regulation and Capital Requirements
Fair value of assets	$ 165.6	$ 22.5

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Investments (Details) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Dec. 31, 2012
Fixed Maturity Investments and Equity Securities
Cost or Amortized Cost, Fixed maturity investments	$ 2,519.4	$ 2,662.2
Cost or Amortized Cost, Equity securities	114.7	38.1
Fair Value, Fixed maturity investments	2,506.2	2,738.6
Fair Value, Equity securities	116.1	40.9
Net unrealized gains (losses) associated with Montpeliers open short positions	2.6	(4.0)
Average duration of fixed maturities	3 years 4 months 24 days
Fixed maturity investments rated "A" (Strong) or better by Standard & Poor's (as a percent)	68.00%
Fixed maturity investments rated "BBB" (Good) by Standard & Poor's (as a percent)	11.00%
Fixed maturity investments unrated or rated below "BBB" by Standard & Poor's (as a percent)	21.00%
Fixed maturity investments
Fixed Maturity Investments and Equity Securities
Open short positions	88.6	127.8
Equity and investment option and future positions
Fixed Maturity Investments and Equity Securities
Open short positions	22.3	11.0
Corporate debt securities
Fixed Maturity Investments and Equity Securities
Cost or Amortized Cost, Fixed maturity investments	850.0	1,002.9
Fair Value, Fixed maturity investments	854.7	1,037.7
Residential mortgage-backed securities
Fixed Maturity Investments and Equity Securities
Cost or Amortized Cost, Fixed maturity investments	644.9	616.2
Fair Value, Fixed maturity investments	637.2	630.0
Debt securities issued/sponsored by the U.S. Treasury and its agencies
Fixed Maturity Investments and Equity Securities
Cost or Amortized Cost, Fixed maturity investments	449.7	466.4
Fair Value, Fixed maturity investments	435.3	473.0
Commercial mortgage-backed securities
Fixed Maturity Investments and Equity Securities
Cost or Amortized Cost, Fixed maturity investments	162.1	148.6
Fair Value, Fixed maturity investments	163.9	155.6
Debt securities issued by non-U.S. governments and their agencies
Fixed Maturity Investments and Equity Securities
Cost or Amortized Cost, Fixed maturity investments	92.9	109.4
Fair Value, Fixed maturity investments	88.3	113.3
Debt securities issued by U.S. states and political subdivisions
Fixed Maturity Investments and Equity Securities
Cost or Amortized Cost, Fixed maturity investments	53.2	65.2
Fair Value, Fixed maturity investments	56.3	72.2
Other debt obligations
Fixed Maturity Investments and Equity Securities
Cost or Amortized Cost, Fixed maturity investments	266.6	253.5
Fair Value, Fixed maturity investments	270.5	256.8
Exchange-listed funds
Fixed Maturity Investments and Equity Securities
Cost or Amortized Cost, Equity securities	103.0	25.0
Fair Value, Equity securities	104.1	26.9
Other
Fixed Maturity Investments and Equity Securities
Cost or Amortized Cost, Equity securities	11.7	13.1
Fair Value, Equity securities	$ 12.0	$ 14.0

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Loss and LAE Reserve Movements (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Loss and LAE reserve activities
Gross unpaid loss and LAE reserves - beginning	$ 1,035.3	$ 1,035.7	$ 1,112.4	$ 1,077.1
Reinsurance recoverable on unpaid losses - beginning	(86.6)	(71.1)	(102.7)	(77.7)
Net unpaid loss and LAE reserves - beginning	948.7	964.6	1,009.7	999.4
Losses and LAE incurred:
Current year losses	94.5	73.9	163.5	146.6
Prior year losses	(47.7)	(16.7)	(66.1)	(45.4)
Total incurred losses and LAE	46.8	57.2	97.4	101.2
Net foreign currency translation movements on loss and LAE reserves	(1.4)	8.8	21.3	1.2
Losses and LAE paid and approved for payment:
Current year losses	(10.0)	(6.9)	(14.6)	(9.1)
Prior year losses	(63.5)	(55.0)	(147.8)	(139.2)
Total losses and LAE paid and approved for payment	(73.5)	(61.9)	(162.4)	(148.3)
Net unpaid loss and LAE reserves - ending	923.4	951.1	923.4	951.1
Reinsurance recoverable on unpaid losses - ending	(80.3)	(78.8)	(80.3)	(78.8)
Gross unpaid loss and LAE reserves - ending	$ 1,003.7	$ 1,029.9	$ 1,003.7	$ 1,029.9

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Loss and LAE Reserve Movements (Details 2) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended		3 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013 Montpelier Bermuda	Jun. 30, 2012 2008 individual risk losses Montpelier Bermuda	Jun. 30, 2013 Commutation/settlement of several prior year contracts	Jun. 30, 2013 2011 Japan earthquake	Mar. 31, 2013 2011 Japan earthquake	Mar. 31, 2012 2011 Japan earthquake	Jun. 30, 2013 2012 Hurricane Sandy	Jun. 30, 2013 2012 Costa Concordia accident	Mar. 31, 2012 2011 Danish cloudburst	Mar. 31, 2012 Fire losses occurring during 2011 and 2010	Mar. 31, 2012 2011 New Zealand earthquake	Jun. 30, 2012 Known 2011 and 2010 catastrophe events	Mar. 31, 2012 Known 2011 and 2010 catastrophe events	Mar. 31, 2012 2011 and 2010 non-catastrophe property and casualty losses	Jun. 30, 2013 2012 natural catastrophe losses	Mar. 31, 2013 2012 natural catastrophe losses	Mar. 31, 2013 Settlement associated with the 2010 Deepwater Horizon oil rig explosion and fire	Mar. 31, 2013 2011 Fire at a Texas fuel storage facility	Mar. 31, 2013 2007 fire at a Chilean power plant	Mar. 31, 2013 2005 hurricanes	Mar. 31, 2013 2011 Georgia weather events	Jun. 30, 2012 Other Specialty - Treaty	Jun. 30, 2012 Other Specialty - Treaty Montpelier Bermuda
Net favorable development on losses and LAE reserves
Net favorable development on prior year losses and LAE reserve	$ (47.7)	$ (16.7)	$ (66.1)	$ (45.4)		$ 5.1	$ (5.4)	$ (4.7)	$ (3.6)	$ (6.8)	$ (4.4)	$ (2.2)	$ 3.9	$ (3.9)	$ 2.3	$ (4.4)	$ 1.3	$ (9.8)	$ 7.5	$ (11.9)	$ (5.0)	$ 2.6	$ 2.5	$ (1.9)	$ (1.6)	$ (13.1)	$ (5.0)
Net favorable development on prior year losses and LAE reserve related specifically to the medical malpractice class of business					(7.1)
Foreign currency transaction gains (losses) related to prior year loss and LAE	6.1	(2.0)	(6.7)	0.6
Foreign currency translation gains (losses)	$ (1.4)	$ 8.8	$ 21.3	$ 1.2

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Shareholders' Equity

6 Months Ended

Jun. 30, 2013

Shareholders' Equity

Shareholders' Equity

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, separately as a single class.  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

On May 10, 2011, the Company issued the Preferred Shares which have 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.

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 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.

The Preferred Shares are listed on the New York Stock Exchange and the Bermuda Stock Exchange.

Common Shares

The following table summarizes the Company’s Common Share activity during the six month periods ended June 30, 2013 and 2012:

	Six Month Periods Ended June 30,
(in Common Shares)	2013		2012
Beginning Common Shares outstanding	55,269,690		60,864,174
Acquisitions of Common Shares:
Common Shares repurchased and retired	(4,527,795	)	(3,917,939	)
Common Shares repurchased and placed in treasury	—		(431,800	)
Issuances of Common Shares:
Issuances in satisfaction of vested Restricted Share Unit (“RSU”) obligations	278,212		47,562
Ending Common Shares outstanding	51,020,107		56,561,997

As of June 30, 2013, the Company had 51,020,107 Common Shares outstanding consisting of 52,183,346 Common Shares issued less 1,163,239 Common Shares held in treasury.  As of December 31, 2012, the Company had 55,269,690 Common Shares outstanding consisting of 56,711,141 Common Shares issued less 1,441,451 Common Shares held in treasury.

2013 Common Share activity

The Company repurchased 4,058,573 Common Shares pursuant to a publicly announced share repurchase program at an average price of $25.16 per share during the first half of 2013. These Common Shares were subsequently retired.

On March 7, 2013, the Board authorized the private purchase of 469,222 Common Shares from Mr. Thomas G.S. Busher, the Company’s COO and Head of European Operations, in connection with his planned retirement.  The price paid to Mr. Busher was $24.62 per share, which was $0.63 less than the market price (as per the New York Stock Exchange) at the time the agreement was reached. See Note 14.

The Company issued 278,212 Common Shares to employees and directors in satisfaction of vested RSU obligations during the first half of 2013. See Note 12. The Common Shares were issued from the Company’s treasury resulting in a loss on issuance of $0.5 million, which was recorded as a decrease to additional paid-in capital.

2012 Common Share activity

The Company repurchased 3,917,939 Common Shares pursuant to a publicly announced share repurchase program at an average price of $19.57 per share during the first half of 2012. These Common Shares were subsequently retired.

The Company repurchased a further 431,800 Common Shares pursuant to a publicly announced share repurchase program at an average price of $20.75 per share during the first half of 2012. These Common Shares were placed in the Company’s treasury and are expected to be re-issued to employees and directors in satisfaction of existing and future RSU obligations.

The Company issued 47,562 Common Shares to employees and directors in satisfaction of vested RSU obligations during the first half of 2012. See Note 13. The Common Shares were issued from the Company’s treasury resulting in a gain on issuance of $0.1 million, which was recorded as an increase to additional paid-in capital.

Common Share Repurchase Authorization

As of June 30, 2013, the Company had a remaining share repurchase authorization of $172.0 million. There is no stated expiration date associated with the Company’s share repurchase authorization.

Common and Preferred Share Dividends Declared and Paid

The Company declared cash dividends per Common Share totaling $0.115 and $0.105 during the three month periods ended June 30, 2013 and 2012, respectively and $0.23 and $0.21 during the six month periods ended June 30, 2013 and 2012, respectively.  The total amount of dividends paid to holders of Common Shares during each of the six month periods ended June 30, 2013 and 2012, was $12.6 million.  As of June 30, 2013 and December 31, 2012, the Company had $5.8 million and $6.4 million, respectively, of dividends payable to holders of Common Shares.

The Company declared cash dividends per Preferred Share totaling $0.555 during each of the three month periods ended June 30, 2013 and 2012, respectively, and $1.109 during each of the six month periods ended June 30, 2013 and 2012, respectively.  The total amount of dividends paid to holders of Preferred Shares during each of the six month periods ended June 30, 2013 and 2012, was $6.6 million.  As of June 30, 2013 and December 31, 2012, the Company had $3.4 million and $3.3 million, respectively, of dividends payable to holders of Preferred Shares.

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Segment Reporting (Tables)

6 Months Ended

Jun. 30, 2013

Segment Reporting

Schedule of identifiable assets by segment

	June 30, 2013		December 31, 2012
Montpelier Bermuda	$	3,109.0	$	3,126.5
Montpelier Syndicate 5151	555.7		552.9
Blue Capital	224.2		74.0
MUSIC Run-Off	39.9		48.9
Corporate and Other, including intercompany eliminations	6.9		7.8
Total assets	$	3,935.7	$	3,810.1

Schedule of operations by segment

Three Month Period Ended June 30, 2013	Montpelier Bermuda			Montpelier Syndicate 5151			Blue Capital			MUSIC Run-Off			Corporate and Other			Total
Gross premiums written	$	160.6		$	58.9		$	22.6		$	0.3		$	0.3		$	242.7
Ceded reinsurance premiums	(32.3		)	(9.3		)	(3.0		)	—			(0.3		)	(44.9		)
Net premiums written	128.3			49.6			19.6			0.3			—			197.8
Change in net unearned premiums	(44.2		)	(0.6		)	(14.1		)	—			—			(58.9		)
Net premiums earned	84.1			49.0			5.5			0.3			—			138.9
Loss and LAE	(18.9		)	(25.4		)	(2.0		)	(0.5		)	—			(46.8		)
Acquisition costs	(10.0		)	(11.9		)	(0.6		)	(0.1		)	—			(22.6		)
General and administrative expenses	(8.6		)	(7.9		)	(0.9		)	—			(9.0		)	(26.4		)
Underwriting income	46.6			3.8			2.0			(0.3		)	(9.0		)	43.1
Net investment income	15.2			1.3			—			0.2			—			16.7
Net investment and foreign exchange losses	(61.0		)	(4.7		)	—			(0.7		)	(0.1		)	(66.5		)
Net loss from derivative instruments	(14.2		)	0.5			—			—			1.5			(12.2		)
Other revenue	(0.7		)	(0.2		)	0.2			—			0.7			—
Interest and other financing expenses	—			(0.5		)	—			—			(4.2		)	(4.7		)
Loss before income taxes	$	(14.1	)	$	0.2		$	2.2		$	(0.8	)	$	(11.1	)	$	(23.6	)

Three Month Period Ended June 30, 2012	Montpelier  Bermuda			Montpelier Syndicate 5151			Blue Capital			MUSIC Run-Off			Corporate and Other			Total
Gross premiums written	$	186.9		$	63.4		$	2.4		$	0.2		$	0.6		$	253.5
Ceded reinsurance premiums	(40.5		)	(1.6		)	—			—			(0.6		)	(42.7		)
Net premiums written	146.4			61.8			2.4			0.2			—			210.8
Change in unearned premiums	(61.5		)	(9.1		)	(2.0		)	8.2			—			(64.4		)
Net premiums earned	84.9			52.7			0.4			8.4			—			146.4
Loss and LAE	(19.5		)	(32.2		)	—			(5.5		)	—			(57.2		)
Acquisition costs	(8.9		)	(11.8		)	—			(2.9		)	—			(23.6		)
General and administrative expenses	(11.0		)	(11.2		)	(0.8		)	—			(8.0		)	(31.0		)
Underwriting income	45.5			(2.5		)	(0.4		)	—			(8.0		)	34.6
Net investment income	16.4			0.5			—			0.3			—			17.2
Net investment and foreign exchange	8.9			7.5			—			—			(0.2		)	16.2
Net income from derivative instruments	4.1			(0.2		)	—			—			(1.8		)	2.1
Other revenue	—			0.1			—			—			0.1			0.2
Interest and other financing expenses	(0.2		)	(0.7		)	—			—			(3.9		)	(4.8		)
Income before income taxes	$	74.7		$	4.7		$	(0.4	)	$	0.3		$	(13.8	)	$	65.5

Six Month Period Ended June 30, 2013	Montpelier Bermuda			Montpelier Syndicate 5151			Blue Capital			MUSIC Run-Off			Corporate and Other			Total
Gross premiums written	$	336.5		$	128.7		$	37.2		$	0.6		$	0.9		$	503.9
Ceded reinsurance premiums	(58.2		)	(18.0		)	(3.0		)	—			(0.9		)	(80.1		)
Net premiums written	278.3			110.7			34.2			0.6			—			423.8
Change in net unearned premiums	(93.0		)	(7.3		)	(24.9		)	—			—			(125.2		)
Net premiums earned	185.3			103.4			9.3			0.6			—			298.6
Loss and LAE	(26.2		)	(68.5		)	(2.0		)	(0.7		)	—			(97.4		)
Acquisition costs	(18.8		)	(24.8		)	(0.9		)	(0.2		)	—			(44.7		)
General and administrative expenses	(17.8		)	(16.2		)	(1.6		)	—			(17.7		)	(53.3		)
Underwriting income	122.5			(6.1		)	4.8			(0.3		)	(17.7		)	103.2
Net investment income	30.0			2.7			—			0.4			—			33.1
Net investment and foreign exchange losses	(69.1		)	25.1			—			(0.8		)	(1.3		)	(46.1		)
Net loss from derivative instruments	(6.7		)	(2.3		)	—			—			1.4			(7.6		)
Other revenue	—			—			0.7			—			(0.7		)	—
Interest and other financing expenses	(0.1		)	(1.0		)	—			—			(8.3		)	(9.4		)
Income before income taxes	$	76.6		$	18.4		$	5.5		$	(0.7	)	$	(26.6	)	$	73.2

Six Month Period Ended June 30, 2012	Montpelier Bermuda			Montpelier Syndicate 5151			Blue Capital			MUSIC Run-Off			Corporate and Other			Total
Gross premiums written	$	367.6		$	138.1		$	2.4		$	1.5		$	3.6		$	513.2
Ceded reinsurance premiums	(67.1		)	(11.7		)	—			—			(3.6		)	(82.4		)
Net premiums written	300.5			126.4			2.4			1.5			—			430.8
Change in unearned premiums	(117.3		)	(22.9		)	(2.0		)	18.3			—			(123.9		)
Net premiums earned	183.2			103.5			0.4			19.8			—			306.9
Loss and LAE	(35.7		)	(51.8		)	—			(13.7		)	—			(101.2		)
Acquisition costs	(21.1		)	(20.4		)	—			(6.9		)	—			(48.4		)
General and administrative expenses	(20.9		)	(19.8		)	(0.8		)	—			(15.2		)	(56.7		)
Underwriting income	105.5			11.5			(0.4		)	(0.8		)	(15.2		)	100.6
Net investment income	33.2			1.0			—			0.6			—			34.8
Net investment and foreign exchange	45.2			0.6			—			0.3			(0.1		)	46.0
Net income from derivative instruments	4.9			(0.2		)	—			—			(1.1		)	3.6
Other revenue	0.1			0.2			—			0.2			0.2			0.7
Interest and other financing expenses	(0.6		)	(0.7		)	—			—			(8.5		)	(9.8		)
Income before income taxes	$	188.3		$	12.4		$	(0.4	)	$	0.3		$	(24.7	)	$	175.9

Schedule of gross premiums written by line of business and reportable segment

Three Month Period Ended June 30, 2013	Montpelier Bermuda		Montpelier Syndicate 5151		Blue Capital		MUSIC Run-Off		Corporate and Other (1)			Total
Property Catastrophe - Treaty	$	120.0	$	0.9	$	22.6	$	—	$	0.3		$	143.8
Property Specialty - Treaty	12.0		0.4		—		—		0.1			12.5
Other Specialty - Treaty	16.2		15.4		—		—		(0.1		)	31.5
Property and Specialty Individual Risk	12.4		42.2		—		0.3		—			54.9
Total gross premiums written	$	160.6	$	58.9	$	22.6	$	0.3	$	0.3		$	242.7

Three Month Period Ended June 30, 2012	Montpelier Bermuda		Montpelier Syndicate 5151		Blue Capital		MUSIC Run-Off		Corporate and Other (1)		Total
Property Catastrophe - Treaty	$	148.0	$	0.9	$	2.4	$	—	$	0.6	$	151.9
Property Specialty - Treaty	12.3		0.5		—		—		—		12.8
Other Specialty - Treaty	11.7		22.9		—		—		—		34.6
Property and Specialty Individual Risk	14.9		39.1		—		0.2		—		54.2
Total gross premiums written	$	186.9	$	63.4	$	2.4	$	0.2	$	0.6	$	253.5

(1) Represents intercompany excess-of-loss reinsurance arrangements between Montpelier Bermuda and Montpelier Syndicate 5151 and between MUSIC Run-Off and Montpelier Syndicate 5151, each of which is eliminated in consolidation.

Six Month Period Ended June 30, 2013	Montpelier Bermuda		Montpelier Syndicate 5151		Blue Capital		MUSIC Run-Off		Corporate and Other (1)			Total
Property Catastrophe - Treaty	$	243.2	$	4.2	$	37.2	$	—	$	0.9		$	285.5
Property Specialty - Treaty	24.0		3.0		—		—		0.1			27.1
Other Specialty - Treaty	46.9		35.3		—		—		(0.1		)	82.1
Property and Specialty Individual Risk	22.4		86.2		—		0.6		—			109.2
Total gross premiums written	$	336.5	$	128.7	$	37.2	$	0.6	$	0.9		$	503.9

Six Month Period Ended June 30, 2012	Montpelier Bermuda		Montpelier Syndicate 5151		Blue Capital		MUSIC Run-Off		Corporate and Other (1)		Total
Property Catastrophe - Treaty	$	275.7	$	9.0	$	2.4	$	—	$	3.6	$	290.7
Property Specialty - Treaty	23.5		2.8		—		—		—		26.3
Other Specialty - Treaty	45.2		46.2		—		—		—		91.4
Property and Specialty Individual Risk	23.2		80.1		—		1.5		—		104.8
Total gross premiums written	$	367.6	$	138.1	$	2.4	$	1.5	$	3.6	$	513.2

(1) Represents intercompany excess-of-loss reinsurance arrangements between Montpelier Bermuda and Montpelier Syndicate 5151 and between MUSIC Run-Off and Montpelier Syndicate 5151, each of which is eliminated in consolidation.

Schedule of gross premiums written by geographic area of risks insured

	Three Month Periods Ended June 30,
	2013				2012
U.S. and Canada	$	162.2	67	%	$	165.4	65	%
Worldwide (1)	45.1		18		53.1		21
Japan	17.0		7		20.6		8
U.K. and Ireland	4.3		2		3.6		1
Worldwide, excluding U.S. and Canada (2)	4.2		2		0.6		—
Western Europe, excluding the U.K. and Ireland	1.4		1		3.7		2
Other	8.5		3		6.5		3
Total gross premiums written	$	242.7	100	%	$	253.5	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.

	Six Month Periods Ended June 30,
	2013				2012
U.S. and Canada	$	282.0	56	%	$	278.8	54	%
Worldwide (1)	112.0		22		128.6		25
Worldwide, excluding U.S. and Canada (2)	27.0		5		18.3		4
Western Europe, excluding the U.K. and Ireland	26.6		5		25.0		5
Japan	19.1		4		22.8		4
U.K. and Ireland	14.1		3		16.1		3
Other	23.1		5		23.6		5
Total gross premiums written	$	503.9	100	%	$	513.2	100	%

Schedule of net premiums earned by line of business and reportable segment

Three Month Period Ended June 30, 2013	Montpelier Bermuda		Montpelier Syndicate 5151		Blue Capital		MUSIC Run-Off		Corporate and Other (1)			Total
Property Catastrophe - Treaty	$	59.2	$	1.5	$	5.5	$	—	$	0.2		$	66.4
Property Specialty - Treaty	11.7		1.7		—		—		(0.3		)	13.1
Other Specialty - Treaty	10.4		17.3		—		—		—			27.7
Property and Specialty Individual Risk	2.8		28.5		—		0.3		0.1			31.7
Total net premiums earned	$	84.1	$	49.0	$	5.5	$	0.3	$	—		$	138.9

Three Month Period Ended June 30, 2012	Montpelier Bermuda		Montpelier Syndicate 5151		Blue Capital		MUSIC Run-Off		Corporate and Other (1)		Total
Property Catastrophe - Treaty	$	55.7	$	3.4	$	0.4	$	—	$	—	$	59.5
Property Specialty - Treaty	11.5		1.6		—		—		—		13.1
Other Specialty - Treaty	10.3		21.2		—		—		—		31.5
Property and Specialty Individual Risk	7.4		26.5		—		8.4		—		42.3
Total net premiums earned	$	84.9	$	52.7	$	0.4	$	8.4	$	—	$	146.4

(1) Represents intercompany excess-of-loss reinsurance arrangement between Montpelier Bermuda and Montpelier Syndicate 5151 which is eliminated in consolidation.

Six Month Period Ended June 30, 2013	Montpelier Bermuda		Montpelier Syndicate 5151		Blue Capital		MUSIC Run-Off		Corporate and Other (1)			Total
Property Catastrophe - Treaty	$	121.2	$	1.6	$	9.3	$	—	$	0.8		$	132.9
Property Specialty - Treaty	23.1		3.1		—		—		(0.3		)	25.9
Other Specialty - Treaty	29.3		39.3		—		—		—			68.6
Property and Specialty Individual Risk	11.7		59.4		—		0.6		(0.5		)	71.2
Total net premiums earned	$	185.3	$	103.4	$	9.3	$	0.6	$	—		$	298.6

Six Month Period Ended June 30, 2012	Montpelier Bermuda		Montpelier Syndicate 5151		Blue Capital		MUSIC Run-Off		Corporate and Other (1)			Total
Property Catastrophe - Treaty	$	116.5	$	5.7	$	0.4	$	—	$	0.2		$	122.8
Property Specialty - Treaty	22.0		3.3		—		—		—			25.3
Other Specialty - Treaty	29.3		39.9		—		—		0.7			69.9
Property and Specialty Individual Risk	15.4		54.6		—		19.8		(0.9		)	88.9
Total net premiums earned	$	183.2	$	103.5	$	0.4	$	19.8	$	—		$	306.9

(1) Represents intercompany excess-of-loss reinsurance arrangements between Montpelier Bermuda and Montpelier Syndicate 5151 and between MUSIC Run-Off and Montpelier Syndicate 5151, each of which is eliminated in consolidation.

Schedule of net premiums earned by geographic area of risks insured

	Three Month Periods Ended June 30,
	2013				2012
U.S. and Canada	$	81.6	59	%	$	79.1	54	%
Worldwide (1)	22.3		16		32.1		22
Worldwide, excluding U.S. and Canada (2)	8.7		6		3.8		3
Western Europe, excluding the U.K. and Ireland	7.6		5		9.3		6
Japan	5.6		4		7.7		5
U.K. and Ireland	5.3		4		5.4		4
Other	7.8		6		9.0		6
Total net earned premiums	$	138.9	100	%	$	146.4	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.

	Six Month Periods Ended June 30,
	2013				2012
U.S. and Canada	$	170.8	57	%	$	167.6	55	%
Worldwide (1)	52.1		17		69.7		23
Western Europe, excluding the U.K. and Ireland	16.6		6		16.3		5
Worldwide, excluding U.S. and Canada (2)	16.4		5		10.4		3
Japan	11.7		4		12.6		4
U.K. and Ireland	10.9		4		11.1		4
Other	20.1		7		19.2		6
Total net earned premiums	$	298.6	100	%	$	306.9	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.

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Investments (Details 4) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Reconciliations of the beginning and ending balances for all investments measured at fair value on a recurring basis using Level 3 inputs
Transfers out of Level 3 of fair value hierarchy	$ 0	$ 0	$ 0	$ 0
Fixed maturity investments
Reconciliations of the beginning and ending balances for all investments measured at fair value on a recurring basis using Level 3 inputs
Net realized gains (losses)	10,500,000	6,100,000	21,900,000	13,800,000
Net unrealized gains (losses)	(68,800,000)	7,000,000	(83,300,000)	21,800,000
Recurring basis | Level 3
Reconciliations of the beginning and ending balances for all investments measured at fair value on a recurring basis using Level 3 inputs
Beginning Level 3 balance	23,100,000	89,300,000	124,300,000	83,700,000
Purchases	11,700,000	32,500,000	38,900,000	81,500,000
Sales and maturities	(2,400,000)	(13,400,000)	(43,100,000)	(59,300,000)
Net realized gains (losses)	(500,000)	900,000	(2,700,000)	1,800,000
Net unrealized gains (losses)	1,500,000	(400,000)	9,700,000	1,200,000
Net transfers out			(93,700,000)
Ending Level 3 balance	33,400,000	108,900,000	33,400,000	108,900,000
Recurring basis | Level 3 | Fixed maturity investments
Reconciliations of the beginning and ending balances for all investments measured at fair value on a recurring basis using Level 3 inputs
Beginning Level 3 balance	21,900,000	60,900,000	111,600,000	54,400,000
Purchases	11,700,000	32,500,000	38,900,000	81,500,000
Sales and maturities	(1,700,000)	(10,600,000)	(31,500,000)	(54,500,000)
Net realized gains (losses)		(100,000)	(4,200,000)	500,000
Net unrealized gains (losses)	800,000	200,000	11,600,000	1,000,000
Net transfers out			(93,700,000)
Ending Level 3 balance	32,700,000	82,900,000	32,700,000	82,900,000
Recurring basis | Level 3 | Corporate debt securities
Reconciliations of the beginning and ending balances for all investments measured at fair value on a recurring basis using Level 3 inputs
Beginning Level 3 balance	3,100,000	52,100,000	95,400,000	44,700,000
Purchases	1,300,000	32,500,000	9,000,000	81,500,000
Sales and maturities	(200,000)	(9,200,000)	(25,500,000)	(52,100,000)
Net realized gains (losses)		(100,000)	(4,200,000)	500,000
Net unrealized gains (losses)		300,000	10,400,000	1,000,000
Net transfers out			(80,900,000)
Ending Level 3 balance	4,200,000	75,600,000	4,200,000	75,600,000
Recurring basis | Level 3 | Other debt obligations
Reconciliations of the beginning and ending balances for all investments measured at fair value on a recurring basis using Level 3 inputs
Beginning Level 3 balance	18,800,000	8,800,000	16,200,000	9,700,000
Purchases	10,400,000		29,900,000
Sales and maturities	(1,500,000)	(1,400,000)	(6,000,000)	(2,400,000)
Net unrealized gains (losses)	800,000	(100,000)	1,200,000
Net transfers out			(12,800,000)
Ending Level 3 balance	28,500,000	7,300,000	28,500,000	7,300,000
Recurring basis | Level 3 | Other investments
Reconciliations of the beginning and ending balances for all investments measured at fair value on a recurring basis using Level 3 inputs
Beginning Level 3 balance	1,200,000	28,400,000	12,700,000	29,300,000
Sales and maturities	(700,000)	(2,800,000)	(11,600,000)	(4,800,000)
Net realized gains (losses)	(500,000)	1,000,000	1,500,000	1,300,000
Net unrealized gains (losses)	700,000	(600,000)	(1,900,000)	200,000
Ending Level 3 balance	$ 700,000	$ 26,000,000	$ 700,000	$ 26,000,000

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Commitments and Contingent Liabilities

6 Months Ended

Jun. 30, 2013

Commitments and Contingent Liabilities

Commitments and Contingent Liabilities

NOTE 10.  Commitments and Contingent Liabilities

Commitments

As of June 30, 2013, Montpelier had unfunded commitments to invest $1.9 million into two separate private investment funds.  As of December 31, 2012, Montpelier had unfunded commitments to invest $14.8 million into three separate private investment funds.

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.

Lloyd’s Central Fund (the “Central Fund”)

The Central Fund is available to satisfy claims if a member of Lloyd’s is unable to meet its obligations to policyholders.  The 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 2013 and 2012).  In addition, the Council of Lloyd’s has power to call on members to make an additional contribution to the 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 2013 obligation to the Central Fund will be approximately $1.1 million.

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 2013 and 2012) 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 2013 obligation to Lloyd’s for such charges will be approximately $2.4 million.

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 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 June 30, 2013.

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 available to the Company at June 30, 2013.

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.

Certain of Montpelier’s derivative instruments are subject to counterparty risk. Montpelier routinely monitors this risk.

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.

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.

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.

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Derivative Instruments

6 Months Ended

Jun. 30, 2013

Derivative Instruments

Derivative Instruments

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 exchange 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.  The fair value of the LIBOR Swap was derived based on other observable (Level 2) inputs. See Note 5.

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

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 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 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 and balance sheet location of Montpelier’s derivative instruments recorded at June 30, 2013 and December 31, 2012 and the net income (loss) from such derivative instruments during the three and six month periods ended June 30, 2013 and 2012:

		June 30, 2013				December 31, 2012
Derivative Instrument	Balance Sheet Location	Fair Value			Notional Units	Fair Value			Notional Units
Foreign Exchange Contracts:
U.S. Dollars purchased	Other Investments	$	4.8		308.0	$	(1.1	)	165.0
U.S. Dollars sold	Other Investments	(1.7		)	266.5	1.6			155.2
Credit Derivatives	Other Investments	8.1			333.0	(0.4		)	155.1
Interest Rate Contracts	Other Investments	(3.4		)	1,822.0	(0.2		)	137.8
Investment Options and Futures (long)	Other Investments	0.5			0.1	1.0			10.0
LIBOR Swap	Other Investments	0.1			100.0	(1.7		)	100.0
ILW Swaps	Other Assets	2.0			25.0	0.1			3.0
Investment Options and Futures (short)	Liabilities	0.2			13.9	—			—

	Three Month Periods Ended June 30,						Six Month Periods Ended June 30,
Income (Loss) From Derivative Instruments:	2013			2012			2013			2012
Foreign Exchange Contracts - underwriting activities	$	(6.1	)	$	(0.9	)	$	(10.2	)	$	2.2
Foreign Exchange Contracts - investing activities	3.6			2.4			6.5			(0.9		)
Credit Derivatives	(3.8		)	1.5			(4.3		)	2.1
Interest Rate Contracts	(3.8		)	1.0			1.2			1.9
Investment Options and Futures	(3.1		)	—			(1.6		)	(0.5		)
ILW Swaps	(0.5		)	(0.3		)	(0.6		)	(0.3		)
LIBOR Swap	1.5			(1.6		)	1.4			(0.9		)
Net income (loss) from derivative instruments	$	(12.2	)	$	2.1		$	(7.6	)	$	3.6

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

Foreign Exchange Contracts

From time to time Montpelier, either directly or indirectly through its investment managers, enters into foreign currency exchange 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 its underwriting and investing activities.

Foreign Exchange Contracts designed to protect Montpelier’s insurance and reinsurance balances against movements in foreign 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 exchange rates or to enhance Montpelier’s investment performance.

Montpelier’s open Foreign Exchange Contracts at June 30, 2013 were denominated in British pounds, Brazilian reals, New Zealand dollars, Japanese yen, European Union euros, Canadian dollars, Australian dollars, South African rands, Mexican pesos and Malaysian ringgits.  Montpelier’s open Foreign Exchange Contracts at December 31, 2012 were denominated in British pounds, New Zealand dollars, European Union euros, Canadian dollars, Australian dollars, Japanese yen and Brazilian reals

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 arrangements whose value is derived from the credit risk associated with an underlying bond, loan or other financial asset.  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 increases (or decreases). Conversely, when Montpelier is selling credit protection, the value of its derivative position decreases (or increases) when the associated credit risk 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.  As of June 30, 2013 and December 31, 2012, Montpelier had open long option and future positions with fair values of $0.5 million and $1.0 million, respectively, and open short option and future positions with fair values of $0.2 million and zero million, respectively.

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

ILW Swaps

In June 2013 Blue Water Re entered into an ILW Swap (the “Blue Water Re Swap”) with a third party in order to purchase protection against its Florida wind exposures from June 1, 2013 to December 31, 2013.  In return for a fixed payment of $0.5 million, Blue Water Re is entitled to receive a floating payment in the event of losses incurred by the insurance industry as a whole.  The maximum recovery to Blue Water Re is $5.0 million.  Through June 30, 2013, no industry loss event has occurred which would have triggered a recovery by Blue Water Re under the Blue Water Re Swap.

During the second quarter of 2013, Montpelier Bermuda entered into four ILW Swaps (the “Japan Wind Swaps”) with a third party in order to purchase protection against its Japan-based wind and flood exposures from April 1, 2013 to December 15, 2013.  In return for combined fixed payments totaling $2.0 million, Montpelier Re is entitled to receive floating payments in the event of losses incurred by the insurance industry as a whole. The maximum recovery to Montpelier Re under each Japan Wind Swap is $5.0 million, or $20.0 million in total.  Through June 30, 2013, no industry loss event has occurred which would have triggered a recovery by Montpelier Re under the Japan Wind Swaps.

In May 2012 Syndicate 5151 entered into an ILW Swap (the “Engineering Swap”) with a third party in order to purchase protection against its construction and engineering exposures from June 11, 2012 to June 30, 2013.  In return for a fixed payment of $0.3 million, Syndicate 5151 was entitled to receive a floating payment in the event of losses incurred by the insurance industry as a whole. The maximum recovery to Syndicate 5151 under the Engineering Swap was $3.0 million.  The Engineering Swap expired without any recovery to Syndicate 5151.

The fair value of the ILW Swaps are derived based on unobservable (Level 3) inputs.

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Basis of Presentation and Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2013

Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Summary of Significant Accounting Policies

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 in Bermuda, the United States (the “U.S.”), the United Kingdom (the “U.K.”) and Switzerland (collectively “Montpelier”), provides customized and innovative insurance and reinsurance solutions to the global 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 for complete consolidated financial statements. These interim financial statements should be read in conjunction with the audited financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 (the “2012 Form 10-K”), as filed with the Securities and Exchange Commission (the “SEC”). In the opinion of management, these interim financial statements include all normally recurring adjustments considered 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 financial statements may not be indicative of financial results for the full year.

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 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.

Reportable Segments

The Company currently operates through four reportable segments: Montpelier Bermuda, Montpelier Syndicate 5151, Blue Capital and MUSIC Run-Off.  Each of the Company’s segments represents a separate underwriting platform through which Montpelier writes, or formerly wrote, insurance and reinsurance business.  The Company’s segment disclosures provided herein present the operations of Montpelier Bermuda, Montpelier Syndicate 5151, Blue Capital and MUSIC Run-Off prior to the effects of intercompany quota share reinsurance agreements among them.

Detailed financial information about each of the Company’s reportable segments for the three and six month periods ended June 30, 2013 and 2012 is presented in Note 8.  The activities of the Company, certain of its intermediate holding and service companies and intercompany eliminations relating to inter-segment reinsurance and support services, 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 collective assets and operations of Montpelier Reinsurance Ltd. (“Montpelier Re”) and Montpelier Europa AG (“MEAG”).

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 attractive insurance and reinsurance opportunities by combining underwriting experience with proprietary risk pricing and capital allocation models and catastrophe modeling tools.

MEAG, the Company’s wholly-owned subsidiary based in Baar, Canton Zug, Switzerland, primarily focuses on marketing activities in Continental Europe and the Middle East on behalf of Montpelier Re. MEAG also 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 Montpelier Syndicate 5151.

Montpelier Syndicate 5151

The Montpelier Syndicate 5151 segment consists of the collective assets and operations of Syndicate 5151, the Company’s wholly-owned Lloyd’s of London (“Lloyd’s”) syndicate based in London, Montpelier Capital Limited (“MCL”),  Montpelier Underwriting Agencies Limited (“MUAL”), Montpelier Underwriting Services Limited (“MUSL”), Montpelier Underwriting Inc. (“MUI”), and, through September 30, 2012, Paladin Underwriting Agency Limited (“PUAL”).

Syndicate 5151 was established in July 2007 and underwrites property insurance and reinsurance, engineering, marine hull and liability, cargo and specie 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 sole corporate underwriting member of Lloyd’s.

MUAL, the Company’s wholly-owned Lloyd’s Managing Agent based in London, oversees Syndicate 5151’s operations.

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

MUI, the Company’s wholly-owned subsidiary based in Hartford, Connecticut, serves as a Lloyd’s Coverholder and underwrites reinsurance business on behalf of Syndicate 5151 through managing general agents and intermediaries.

PUAL, formerly a wholly-owned subsidiary based in London, also serves as a Lloyd’s Coverholder and underwrites business on behalf of Syndicate 5151 and third parties. PUAL specializes in financial crime classes of business, but also underwrote specialist contractor business until 2011.  In September 2012 Montpelier sold PUAL to a founding member of its management. PUAL’s assets and operations were not material to the Company.

Blue Capital

The Blue Capital 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. (“BCL”) and Blue Capital Insurance Managers Ltd. (“BCIML”). Blue Capital was launched in 2012 as an asset management platform offering a range of catastrophe reinsurance-linked investment products to institutional and retail investors.

Blue Water Re is a Bermuda-based special purpose insurance vehicle that provides property catastrophe reinsurance coverage and related products on a fully-collateralized basis.  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.

BCL and BCIML provide investment and insurance management services to Blue Water Re, as well as various segregated accounts of the Master Fund, including Blue Capital Global Reinsurance SA-I (the “BCGR Cell”) and BCAP Mid Vol Fund (the “BCAP Cell”), collectively, the “Cells”.

Blue Capital Advisors Ltd. (“BCAL”) is a U.S.-based services company that provides accounting, finance, legal and advisory services to BCL.

The Cells have invested in: (i)  fully-collateralized reinsurance-linked 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) other insurance-linked securities offered by entities other than Blue Water Re.

As of June 30, 2013 and December 31, 2012, Montpelier Re’s investment in the BCAP Cell totaled $39.8 million and $23.4 million, respectively.

In October 2012 the Company established the Blue Capital Global Reinsurance Fund Limited (the “BCGR Listed Fund”), a closed-ended, publicly-listed, mutual fund incorporated in Bermuda that serves as the feeder fund for the BCGR Cell.  In December 2012 Montpelier and third parties invested $50.0 million and $50.1 million, respectively, in the BCGR Listed Fund. In May 2013 third parties invested an additional $52.3 million in the BCGR Listed Fund.

The BCGR Listed Fund is considered a “voting interest entity” under GAAP and, since Montpelier currently owns less than 50% of its outstanding ordinary shares, the Company does not consolidate the BCGR Listed Fund’s net assets or operations within its consolidated financial statements or within the Blue Capital segment.

During the first six months of 2013, $144.7 million of the BCGR Listed Fund’s assets were initially invested into the BCGR Cell.   The Company has determined that, because the preference shares issued by Blue Water Re and the Cells do not carry voting rights, Blue Water Re and the Cells are considered “variable interest entities” under GAAP.  Management has also determined that the Company, through BCIML’s insurance management agreement, has a controlling financial interest in these entities.  As a result, Blue Water Re and the Cells are fully-consolidated within the Company’s financial statements with the interests attributable to third party investors being reported as a non-controlling interest.

MUSIC Run-Off

On December 31, 2011, Montpelier completed the sale of Montpelier U.S. Insurance Company (“MUSIC”), the Company’s former U.S.-based excess and surplus lines insurance company, to Selective Insurance Group, Inc. (“Selective”). During the period in which the Company owned MUSIC, it was a domestic surplus lines insurer and was authorized as an excess and surplus lines insurer in all 50 U.S. states and the District of Columbia. MUSIC underwrote smaller commercial property and casualty risks that do not conform to standard insurance lines.

In connection with the sale of MUSIC (the “MUSIC Sale”), Montpelier has either retained, reinsured or otherwise indemnified Selective for all business written by MUSIC with an effective date on or prior to December 31, 2011.  As a result, the MUSIC Run-Off segment for the periods presented herein consists of the insurance business retained, reinsured or otherwise indemnified by Montpelier in accordance with the MUSIC Sale.

The protections provided to Selective pursuant to the MUSIC Sale were effected through the following arrangements, each of which became effective as of December 31, 2011:

(i) Montpelier Re amended and increased its existing quota share arrangement with MUSIC from 75% to 100% (the “MUSIC Quota Share”) which has the effect of ceding the majority of MUSIC’s unearned premiums at December 31, 2011 to Montpelier Re;

(ii) Montpelier Re entered into a Loss Development Cover (the “Loss Development Cover”) with MUSIC which has the effect of ensuring that MUSIC’s net loss and LAE reserves relating to retained business written on or prior to December 31, 2011 (that business not otherwise covered by the MUSIC Quota Share) remains adequate.  Under the Loss Development Cover, any future adverse development associated with such retained reserves will be protected by Montpelier Re and any future favorable development associated with such retained reserves will benefit Montpelier Re; and

(iii) the Company provided Selective with an indemnification which has the effect of guaranteeing each of the contractual arrangements (those with MUSIC and/or Selective) of Montpelier Re U.S. Holdings Ltd.  (“MRUSHL”), as MUSIC’s seller, and Montpelier Re, as MUSIC’s primary reinsurer.

As of June 30, 2013 and December 31, 2012, Montpelier Re had remaining loss and LAE reserves of $37.5 million and $43.5 million, respectively, under the MUSIC Quota Share.  As of those dates, Montpelier Re had not incurred any losses under the Loss Development Cover.

Corporate and Other

The Company’s Corporate and Other activities consist of the assets and operations of the Company and certain of its intermediate holding and service companies, including Montpelier Technical Resources Ltd. (“MTR”).

MTR, the Company’s wholly-owned U.S. subsidiary with its main offices in Woburn, Massachusetts and Hanover, New Hampshire, provides accounting, finance, legal, risk management, information technology, internal audit, human resources and advisory services to many of the Company’s subsidiaries.

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 predetermined 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.

Premiums receivable are recorded at amounts due less any provision for doubtful accounts.  As of June 30, 2013 and December 31, 2012, Montpelier’s provision for doubtful accounts was $3.9 million and $3.8 million, respectively.

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 generally 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.

Also included in acquisition costs are profit commissions earned and incurred. Accrued profit commissions payable are included in insurance and reinsurance balances payable and accrued profit commissions receivable are included in other assets on the Company’s consolidated balance sheets.

Foreign Currency Exchange

The U.S. dollar is the Company’s reporting currency.  The British pound is the functional currency for the Company’s U.K.- based operations and the Swiss franc is the functional currency for the operations of MEAG. The U.S. dollar is the functional currency for all other operations. The assets and liabilities of the Company’s U.K. and Swiss 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 exchange 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.

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

Currency	Opening Rate January 1, 2013	Closing Rate June 30, 2013	Opening Rate January 1, 2012	Closing Rate June 30, 2012
British Pound (GBP)	1.6234	1.5212	1.5617	1.5570
Swiss Franc (CHF)	1.0924	1.0583	1.0634	1.0546

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.

Investments and Cash

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 included in income and reported within net realized and unrealized investment gains (losses) on the Company’s consolidated statement of operations.

Montpelier’s other investments are carried at either fair value or based on the equity method of accounting (which is based on underlying net asset values) and consist primarily of investments in limited partnership interests and private investment funds, the BCGR Listed Fund, private placements 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 the 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 reporting 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 and net income (loss) from derivative instruments are presented net of any associated performance fees.  Montpelier incurred (reversed) performance fees related to its investments and investment-related derivative instruments of $(0.6) million and $0.6 million during the three month periods ended June 30, 2013 and 2012, respectively, and $0.6 million and $2.8 million during the six month periods ended June 30, 2013 and 2012, respectively.

Cash and cash equivalents include cash and fixed income investments with maturities of less than three months, as measured from the date of purchase.  Restricted cash of $115.6 million at June 30, 2013 consisted of $103.3 million of collateral supporting investment securities sold short and derivative positions and $12.3 million of foreign deposit accounts held at Lloyd’s.  Restricted cash of $70.6 million at December 31, 2012 consisted of $57.1 million of collateral supporting investment securities sold short and derivative positions and $13.5 million of foreign deposit accounts held at Lloyd’s.

As of June 30, 2013 and December 31, 2012, $2.4 million and $47.4 million, respectively, of Montpelier’s cash equivalents represented repurchase agreements which were fully collateralized.

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.

Common Shares Held in Treasury

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 June 30, 2013 and December 31, 2012, the Company had inception-to-date gains from issuances of its treasury shares of $0.1 million and $0.6 million, respectively, which have been recorded as additional paid-in capital on the Company’s consolidated balance sheets. 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.  At June 30, 2013 and December 31, 2012, funds withheld balances of $3.1 million and $4.1 million, respectively, were recorded within other assets on the Company’s consolidated balance sheets.

Non-Controlling Interest

The following table summarizes the movements in the non-controlling interest balance during the three and six month periods ended June 30, 2013 and 2012:

	Three Month Periods Ended June 30,				Six Month Periods Ended June 30,
	2013		2012		2013		2012
Non-controlling interest - beginning	$	32.6	$	—	$	—	$	—
Amounts invested into the BCGR Cell on behalf of third parties	66.0		—		97.4		—
Income attributable to non-controlling interest	0.7		—		1.9		—
Non-controlling interest - ending	$	99.3	$	—	$	99.3	$	—

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Commitments and Contingent Liabilities (Details) (USD $) In Millions, unless otherwise specified	Jun. 30, 2013 fund	Dec. 31, 2012 fund
Commitments and Contingent Liabilities
Unfunded commitments to invest	$ 1.9	$ 14.8
Number of private investment funds	2	3

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Shareholders' Equity (Details) (USD $) In Millions, except Share data, unless otherwise specified	0 Months Ended	1 Months Ended	3 Months Ended		6 Months Ended			0 Months Ended
	May 10, 2011	May 31, 2011	Jun. 30, 2013 item	Jun. 30, 2012	Jun. 30, 2013 item	Jun. 30, 2012	Dec. 31, 2012	Mar. 07, 2013 Mr. Thomas Busher, Chief Operating Officer
Shareholders' Equity
Preferred Shares, par value per share (in dollars per share)			$ 0.00167		$ 0.00167
Number of votes to which holders of common shares are entitled for each share held			1		1
Common Shares, par value per share (in dollars per share)			$ 0.00167		$ 0.00167
Liquidation preference (in dollars per share)	$ 25.00
Face value of preferred shares issued	$ 150.0
Preferred Shares, redemption price per share (in dollars per share)			$ 25.00		$ 25.00
Non-Cumulative Preferred Shares Series A dividend (as a percent)		8.875%
Common share activity
Beginning Common Shares outstanding (in shares)					55,269,690	60,864,174
Acquisitions of Common Shares:
Common Shares repurchased and retired (in shares)					(4,527,795)	(3,917,939)
Common Shares repurchased and placed in treasury (in shares)						(431,800)
Issuances of Common Shares:
Issuances in satisfaction of vested Restricted Share Unit ("RSU") obligations (in shares)					278,212	47,562
Ending Common Shares outstanding (in shares)			51,020,107	56,561,997	51,020,107	56,561,997
Common shares issued (in shares)			52,183,346		52,183,346		56,711,141
Common shares in treasury (in shares)			1,163,239		1,163,239		1,441,451
Common shares retired as part of a share repurchase program (in shares)					4,058,573	3,917,939
Common shares repurchased and placed in treasury, average purchase price (in dollars per share)					$ 20.75
Number of shares authorized by Board for private purchase								469,222
Common shares repurchased and retired, average purchase price (in dollars per share)					$ 25.16	$ 19.57		$ 24.62
Per share price by which repurchase price of common stock was less than market price (in dollar per share)								$ 0.63
Gains (losses) from issuances of treasury shares in satisfaction of vested RSU obligations					(0.5)	0.1
Remaining common share repurchase authorization amount					172.0
Dividends declared per Common Share (in dollars per share)			$ 0.115	$ 0.105	$ 0.23	$ 0.21
Total amount of dividends paid to holders					12.6	12.6
Dividend payable to shareholders			5.8		5.8		6.4
Dividend declared on preferred shares (in dollars per share)			$ 0.555	$ 0.555	$ 1.109	$ 1.109
Total amount of dividends paid to holders of preferred shares					6.6	6.6
Dividend payable to preferred shareholders			$ 3.4		$ 3.4		$ 3.3

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Basis of Presentation and Summary of Significant Accounting Policies (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended											1 Months Ended	6 Months Ended				1 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013 segment	Jun. 30, 2012	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012	Dec. 31, 2011	Jun. 30, 2013 MUSIC	Dec. 31, 2012 MUSIC	Dec. 31, 2011 MUSIC	Jun. 30, 2013 BCAP Cell	Dec. 31, 2012 BCAP Cell	Dec. 31, 2012 BCGR Listed Fund	Jun. 30, 2013 BCGR Listed Fund Maximum	Jun. 30, 2013 BCGR Listed Fund BCGR Cell	Dec. 31, 2012 BCGR Listed Fund BCGR Cell	Dec. 31, 2012 BCGR Listed Fund Blue Water Re	May 31, 2013 Third parties BCGR Listed Fund	Dec. 31, 2012 Third parties BCGR Listed Fund
Basis of Presentation and Summary of Significant Accounting Policies
Number of reportable segments			4
Investment disclosures
Investment balance												$ 39.8	$ 23.4				$ 0	$ 0
Payments to acquire investments														50.0		144.7			52.3	50.1
Percentage of outstanding ordinary shares owned															50.00%
Quota share prior to sale (as a percent)											75.00%
Quota share after sale (as a percent)											100.00%
Loss and LAE reserves	1,003.7	1,029.9	1,003.7	1,029.9	1,035.3	1,112.4	1,035.7	1,077.1	37.5	43.5
Insurance and Reinsurance Premiums and Related Costs
Risk period for insurance contracts for premiums to be earned ratably over the term, maximum			3 years
Contracts with risk periods greater than this term earn premiums in accordance with predetermined schedules that reflect risk associated with each period in the contract term			3 years
Provision for doubtful accounts	3.9		3.9			3.8
Investments and Cash
Performance fees incurred (reversed) related to investments and investment-related derivatives	(0.6)	0.6	0.6	2.8
Restricted cash	115.6		115.6			70.6
Collateral supporting investment securities sold short and derivative positions	103.3		103.3			57.1
Foreign Deposit Accounts held at Lloyd's	12.3		12.3			13.5
Fully collateralized short-term investment securities classified as cash equivalents representing repurchase agreements	$ 2.4		$ 2.4			$ 47.4

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Management Transition and Related Party Transaction (Details) (USD $)	6 Months Ended		0 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Mar. 07, 2013 Mr. Thomas Busher, Chief Operating Officer
Management transition and related party transaction
Number of shares authorized by Board for private purchase			469,222
Purchase price of common shares (in dollars per share)	$ 25.16	$ 19.57	$ 24.62
Per share price by which repurchase price of common stock was less than market price (in dollar per share)			$ 0.63

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Income Taxes

6 Months Ended

Jun. 30, 2013

Income Taxes

Income Taxes

NOTE 13.  Income Taxes

The Company is domiciled in Bermuda and has subsidiaries domiciled in several countries, including the U.S. The Company, Montpelier Re and Blue Water Re intend to conduct substantially all of their operations in Bermuda in a manner such that it is improbable that they would be viewed as being engaged in a trade or business in the U.S. However, because there is no definitive authority regarding activities that constitute being engaged in a trade or business in the U.S., there can be no assurance that the U.S. Internal Revenue Service will not contend, perhaps successfully, that the Company, Montpelier Re or Blue Water Re is engaged in a trade or business in the U.S. In that event, those entities would be subject to U.S. income tax, as well as a branch profits tax, on income that is treated as effectively connected with the conduct of that trade or business unless the corporation is entitled to relief under a tax treaty.

The Company’s U.S.-domiciled subsidiaries are subject to federal, state and local corporate income taxes and other taxes applicable to U.S. corporations. The provision for 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 also has subsidiaries domiciled in the U.K. and Switzerland which are subject to the respective income taxes in those jurisdictions.

During the three month periods ended June 30, 2013 and 2012, Montpelier recorded an income tax benefit of $0.4 million and zero million, respectively, and during the six month periods ended June 30, 2013 and 2012, Montpelier recorded an income tax benefit of $0.2 million and zero million, respectively.  During each of the periods presented, the movements in Montpelier’s income taxes were associated primarily with its U.K. operations.

During the three and six month periods ended June 30, 2013, Montpelier paid $0.1 million in income taxes.  During the three and six month periods ended June 30, 2012, Montpelier paid less than $0.1 million in income taxes.

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 June 30, 2013 and 2012, these companies had pretax income (losses) of $(21.1) million and $63.8 million, respectively, and during the six month periods ended June 30, 2013 and 2012, these companies had pretax income of $63.0 million and $175.9 million, respectively.

United Kingdom

MCL, MUAL, MUSL and their parent, Montpelier Holdings Limited, are subject to U.K. income taxes. During the three month periods ended June 30, 2013 and 2012, these companies had pretax income (losses) of $(2.5) million and $1.7 million, respectively, and during the six month periods ended June 30, 2013 and 2012, these companies had pretax income (losses) of $10.2 million and $(0.1) million, respectively.  Of these U.K. entities, only MCL remains in a cumulative net operating loss position.  Although net operating losses ordinarily give rise to deferred tax assets, due to the uncertainty at this time as to whether MCL will generate sufficient taxable income in future periods to utilize such assets, as of June 30, 2013 and December 31, 2012, Montpelier has established U.K. deferred tax asset valuation allowances of $1.0 million and $3.8 million, respectively, against its existing U.K. gross deferred tax assets of $1.5 million and $4.4 million, respectively.

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 (“Group Relief”).

During the three month period ending June 30, 2013, the entities within Montpelier’s U.K. group generated a net loss and, accordingly, Montpelier recorded an income tax benefit of $0.4 million.

During the six month period ending June 30, 2013, the entities within Montpelier’s U.K. group generated net pretax income which arose primarily from MCL.  MCL was able to fully utilize its cumulative net operating loss while the other companies within the Montpelier U.K. group (those other than MCL) recorded an income tax benefit of $0.2 million.

During the three month period ended June 30, 2012, the entities within Montpelier’s U.K. group generated net pretax income.  Nonetheless, MCL was able to utilize its cumulative net operating loss and the remaining companies were able to utilize Group Relief.  As a result, the Montpelier U.K. group did not incur an income tax provision during that period.

During the six month period ended June 30, 2012, the entities within Montpelier’s U.K. group generated a pretax loss. Group Relief and utilization of cumulative net operating losses resulted in the U.K. group not incurring an income tax provision or benefit during that period.

United States

MUI, MTR, BCAL 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 each of the three month periods ended June 30, 2013 and 2012, these companies had pretax income of zero million and during the six month periods ended June 30, 2013 and 2012, these companies had pretax income of zero million and $0.1 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 $14.0 million at June 30, 2013 and December 31, 2012.

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 state and local income taxes. During the three and six month periods ended June 30, 2013 and 2012, such state and local income taxes totaled less than $0.1 million.

Switzerland

MEAG is subject to Swiss income taxes. During the three and six month periods ended June 30, 2013 and 2012, such income taxes totaled less than $0.1 million.

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Basic and Diluted Earnings (Loss) Per Common Share

6 Months Ended

Jun. 30, 2013

Basic and Diluted Earnings (Loss) Per Common Share

Basic and Diluted Earnings (Loss) Per Common Share

NOTE 9.  Basic and Diluted Earnings (Loss) Per Common Share

The Company applies the two-class method of calculating its earnings (loss) 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 (loss) per Common Share, a portion of net income is allocated to RSUs which serves to reduce the Company’s earnings per Common Share numerators. Net losses are not allocated to RSUs and, therefore, do not impact the Company’s per Common Share numerators in the event of a loss per Common Share. Recipients of outstanding RSUs are entitled to receive payments equivalent to dividends and distributions declared on Common Shares. Since outstanding RSUs represent phantom (as opposed to actual) Common Shares, such payments are recorded as general and administrative expenses.

The following table outlines the Company’s computation of its basic and diluted earnings (loss) per Common Share for the three and six month periods ended June 30, 2013 and 2012:

	Three Month Periods Ended June 30,						Six Month Periods Ended June 30,
	2013			2012			2013			2012
Earnings (loss) per Common Share numerator:
Net income (loss) available to the Company’s common shareholders	$	(27.3	)	$	62.1		$	64.8		$	169.2
Less: net earnings allocated to participating securities	—			(1.4		)	(1.3		)	(3.7		)
Net income (loss) available to the Company’s common shareholders	$	(27.3	)	$	60.7		$	63.5		$	165.5
Average Common Shares outstanding (in millions of shares)	52.1			57.3			53.3			58.7
Basic and diluted earnings (loss) per Common Share	$	(0.52	)	$	1.06		$	1.19		$	2.82

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Basis of Presentation and Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2013

Basis of Presentation and Summary of Significant Accounting Policies

Insurance and Reinsurance Premiums and Related Costs

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 predetermined 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.

Premiums receivable are recorded at amounts due less any provision for doubtful accounts.  As of June 30, 2013 and December 31, 2012, Montpelier’s provision for doubtful accounts was $3.9 million and $3.8 million, respectively.

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 generally 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.

Also included in acquisition costs are profit commissions earned and incurred. Accrued profit commissions payable are included in insurance and reinsurance balances payable and accrued profit commissions receivable are included in other assets on the Company’s consolidated balance sheets.

Foreign Currency Exchange

Foreign Currency Exchange

The U.S. dollar is the Company’s reporting currency.  The British pound is the functional currency for the Company’s U.K.- based operations and the Swiss franc is the functional currency for the operations of MEAG. The U.S. dollar is the functional currency for all other operations. The assets and liabilities of the Company’s U.K. and Swiss 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 exchange 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.

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

Currency	Opening Rate January 1, 2013	Closing Rate June 30, 2013	Opening Rate January 1, 2012	Closing Rate June 30, 2012
British Pound (GBP)	1.6234	1.5212	1.5617	1.5570
Swiss Franc (CHF)	1.0924	1.0583	1.0634	1.0546

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.

Investments

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 included in income and reported within net realized and unrealized investment gains (losses) on the Company’s consolidated statement of operations.

Montpelier’s other investments are carried at either fair value or based on the equity method of accounting (which is based on underlying net asset values) and consist primarily of investments in limited partnership interests and private investment funds, the BCGR Listed Fund, private placements 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 the 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 reporting 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 and net income (loss) from derivative instruments are presented net of any associated performance fees.  Montpelier incurred (reversed) performance fees related to its investments and investment-related derivative instruments of $(0.6) million and $0.6 million during the three month periods ended June 30, 2013 and 2012, respectively, and $0.6 million and $2.8 million during the six month periods ended June 30, 2013 and 2012, respectively.

Cash

Cash

Cash and cash equivalents include cash and fixed income investments with maturities of less than three months, as measured from the date of purchase.  Restricted cash of $115.6 million at June 30, 2013 consisted of $103.3 million of collateral supporting investment securities sold short and derivative positions and $12.3 million of foreign deposit accounts held at Lloyd’s.  Restricted cash of $70.6 million at December 31, 2012 consisted of $57.1 million of collateral supporting investment securities sold short and derivative positions and $13.5 million of foreign deposit accounts held at Lloyd’s.

As of June 30, 2013 and December 31, 2012, $2.4 million and $47.4 million, respectively, of Montpelier’s cash equivalents represented repurchase agreements which were fully collateralized.

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.

Common Shares Held in Treasury

Common Shares Held in Treasury

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 June 30, 2013 and December 31, 2012, the Company had inception-to-date gains from issuances of its treasury shares of $0.1 million and $0.6 million, respectively, which have been recorded as additional paid-in capital on the Company’s consolidated balance sheets. See Note 7.

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Management Transition and Related Party Transaction

6 Months Ended

Jun. 30, 2013

Management Transition and Related Party Transaction

Management Transition and Related Party Transaction

NOTE 14.  Management Transition and Related Party Transaction

In February 2013 the Company announced the planned retirement of Mr. Busher on December 31, 2013.  Mr. Busher has served as Chief Operating Officer (“COO”) of the Company since its inception in 2001 and also serves as the Company’s Head of European Operations.  In order to promote a smooth transition of Mr. Busher’s current duties and responsibilities, the Company entered into a transition letter with him on February 21, 2013 pursuant to which he: (i) retired from the Board, effective May 17, 2013, the end of his existing term as a Class B director, (ii) will transition his executive roles with the Company during 2013, (iii) will retire as COO and Head of European Operations, effective December 31, 2013 (the date Mr. Busher’s service agreement expires), and (iv) will continue to serve as a director and the non-executive Chairman of the Board of Directors of MUAL.

Pursuant to the transition letter, Mr. Busher waived all rights to severance and other termination payments set forth in his service agreement, including any entitlement to payments upon expiration or non-renewal of his service agreement.  In consideration for Mr. Busher’s waiver of these and other rights under his service agreement, as well as his release of any claims against the Company and his continued compliance with the restrictive covenants contained in his service agreement, the Company agreed to the following treatment of his outstanding RSUs awards: (i) the RSUs that were originally granted to Mr. Busher pursuant to the 2010-2013 and 2012-2015 Variable RSU cycles, which were scheduled to vest on December 15, 2013, were vested fully on March 15, 2013; (ii) the RSUs that were originally granted to Mr. Busher as part of the 2012-2015 Variable RSU cycle, which are scheduled to vest on December 15, 2014 or later, will vest fully on December 15, 2013; and (iii) the RSUs that were granted to Mr. Busher as part of the 2013-2016 Variable RSU cycle, which are scheduled to vest on December 15, 2014 or later, will vest fully on March 15, 2014, subject to the achievement of performance goals for 2013 which were established at the time of grant.  See Note 12.

In connection with Mr. Busher’s planned retirement, on March 7, 2013 he sold 469,222 Common Shares to the Company in a private transaction.  The price paid to Mr. Busher was $24.62 per share, which was $0.63 less than the market price (as per the New York Stock Exchange) at the time the agreement was reached.

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Document and Entity Information	6 Months Ended
	Jun. 30, 2013	Aug. 01, 2013
Document and Entity Information
Entity Registrant Name	MONTPELIER RE HOLDINGS LTD
Entity Central Index Key	0001165880
Document Type	10-Q
Document Period End Date	Jun. 30, 2013
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		50,734,655
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q2

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Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2013

Fair Value of Financial Instruments

Fair Value of Financial Instruments

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 2022 Senior Notes, Trust Preferred Securities and other investments carried at net asset value.

At June 30, 2013 and December 31, 2012, the fair value of the 2022 Senior Notes (based on quoted market prices, which represent Level 2 inputs) was $293.1 million and $306.9 million, respectively, which compared to a carrying value of $299.1 million. See Note 5.

At June 30, 2013 and December 31, 2012, the fair value of the Trust Preferred Securities (based on quoted market prices for similar securities, which represent Level 2 inputs) was $89.5 million and $89.0 million, respectively, which compared to a carrying value of $100.0 million. See Note 5.

At June 30, 2013 and December 31, 2012, the fair value and net asset value of Montpelier’s other investments carried on the Company’s balance sheets were approximately the same. See Note 4.

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Fair Value of Financial Instruments (Details) (USD $) In Millions, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Fair Value of Financial Instruments
Carrying value	$ 399.1	$ 399.1
2022 Senior Notes
Fair Value of Financial Instruments
Carrying value	299.1	299.1
2022 Senior Notes | Level 2
Fair Value of Financial Instruments
Fair value	293.1	306.9
Trust Preferred Securities
Fair Value of Financial Instruments
Carrying value	100.0	100.0
Trust Preferred Securities | Level 2
Fair Value of Financial Instruments
Fair value	$ 89.5	$ 89.0