NOTE 9. Income Taxes, page F-32

2. Please provide us proposed disclosure to be included in future periodic filings to separately disclose the income before income tax expense for domestic and foreign operations. Refer to Rule 4-08(h) of Regulation S-X.

Response:

Our proposed disclosure, which has been marked to show edits from the disclosure contained on pages F-32 through F-33 of the Form 10-K, has been included as Appendix B to this letter.

We will include additional disclosure along the lines of that provided in Appendix B in our future interim and annual filings, as appropriate.

In connection with responding to your comments, we acknowledge that:

·                  The Company is responsible for the adequacy and accuracy of the disclosure in the filing;

·                  Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the filing; and

·                  the Company may not assert Staff comments as a defense in any proceeding initiated by the Securities and Exchange Commission or any person under the federal securities laws of the United States.

Should you have any questions regarding this matter, please do not hesitate to contact me.

2

Appendix A

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:

As a provider of insurance and reinsurance for natural and man-made catastrophes, Montpelier could become liable for 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 December 31, 2010, 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.

As of December 31, 2010, 86% 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 and 14% were rated “BBB” (Good) or below by Standard & Poor’s.

In addition to the equity securities presented above, Montpelier also had open short equity positions, including short investment option and future positions, recorded within its other liabilities of $25.4 million and $38.6 million at December 31, 2010 and 2009, respectively, with associated net unrealized losses of $1.3 million and $0.5 million, respectively.

3

The contractual maturity of Montpelier’s fixed maturity investments at December 31, 2010 and 2009 is presented below:

Other Investments

Montpelier’s investments in limited partnership interests and private investment funds are carried at either their fair value or their underlying net asset value, depending on Montpelier’s ownership share. For those funds carried at fair value, the underlying net asset value is used as a best estimate of fair value.  Montpelier’s CAT Bonds, investment in Symetra common shares and derivative instruments are carried at fair value.  The table below shows the aggregate cost and carrying value of Montpelier’s other investments, by investment type, as of the dates indicated:

Net appreciation or depreciation on Montpelier’s investments in limited partnerships, private investment funds and CAT Bonds is reported as net realized and unrealized gains (losses) in the Company’s consolidated statements of operations. Net appreciation or depreciation on Montpelier’s derivative instruments is reported as net income (expense) from derivative instruments.  See Note 6.

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 does not expect to redeem a significant portion of these investments prior to 2012.

Montpelier also had open investment option and futures contracts as of December 31, 2010 and 2009.  See Note 6.

In January 2010 the common stock of Symetra Financial Corporation (“Symetra”) began trading on the New York Stock Exchange under symbol “SYA” as a result of the completion of Symetra’s initial public offering (the “Symetra IPO”). Prior to the Symetra IPO, Montpelier’s investment in Symetra was carried as an other investment on the Company’s consolidated balance sheets and its net appreciation or depreciation was reported as a separate component of shareholders’ equity, with changes therein reported as a component of other comprehensive income on the Company’s consolidated statements of operations.

4

Level 1 Securities

Montpelier’s investments classified as Level 1 as of December 31, 2010 and 2009, consisted of U.S. Treasuries and equity securities that are publicly listed and/or actively traded in an established market.  Montpelier’s open short equity positions are also valued on the basis of Level 1 inputs.

Level 2 Securities

For Montpelier’s investments classified as Level 2 as of December 31, 2010 and 2009, 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.  Further details for selected investment types follow:

Residential mortgage-backed securities and debt securities issued by U.S. 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 TBA market (which is extremely liquid), 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.

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.

6

U.S. government-sponsored enterprise securities.  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.

Level 3 Securities

Montpelier’s investments classified as Level 3 as of December 31, 2010 and 2009, 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. As of December 31, 2009, equity securities and other investments classified as Level 3 also included preferred instruments and Montpelier’s investment in Symetra, respectively.

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.

Residential mortgage-backed securities and other debt obligations.  Montpelier’s Level 3 residential mortgage-backed securities and other debt obligations are priced on the basis of cash-flow and other models and non-binding broker quotes that can not be corroborated with other externally obtained information.

Other investments.  Montpelier’s Level 3 other investments include investments in limited partnerships and private investment funds at December 31, 2010 which represent alternative asset limited partnerships that invest in distressed mortgages. The fair value of these private equity 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, require significant management judgment to determine the underlying value.  Montpelier also considers factors such as recent financial information and management’s judgment. Montpelier regularly reviews the performance of these entities directly with the fund and partnership managers.

As of December 31, 2010 and 2009, the Company’s Level 3 investments represented 3.4% and 8.3% of its total investments measured at fair value, respectively. During 2010, sales of bank loans within Montpelier’s portfolio of corporate debt securities, as well as increased pricing transparency associated with certain residential mortgage-backed and corporate fixed-maturity securities historically classified as Level 3, resulted in a shift of such investments to Level 2. In addition, during the first quarter of 2010, Montpelier’s investment in Symetra was reclassified from other investments to equity securities and was transferred from Level 3 to Level 1 as a result of the Symetra IPO.

There were no significant transfers between Levels 1 and 2 during 2010 or 2009.

7

The following tables present a reconciliation of the beginning and ending balances for all investments measured at fair value on a recurring basis using Level 3 inputs during the year ended December 31, 2010 and 2009:

8

Changes in Carrying Value

Changes in the carrying value of Montpelier’s investment portfolio and its short equity positions for the years ended December 31, 2010, 2009 and 2008, consisted of the following:

(1)          Represents net realized and unrealized foreign exchange gains (losses) from investments and income (expense) derived from investments in the Foreign Exchange Contracts, Credit Derivatives, Interest Rate Contracts and Investment Options and Futures (See Note 6).  These derivatives are carried at fair value as other investments in the Company’s consolidated balance sheets.

Net Investment Income

Montpelier’s net investment income for the years ended December 31, 2010, 2009 and 2008 consisted of the following:

Assets on Deposit and Held in Trust

Effective September 30, 2010, Montpelier Re established 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 an alternative means of providing statutory credit to Montpelier Re’s cedants.  As of December 31, 2010, Montpelier Re was granted authorized or trusteed reinsurer status in 15 states and is currently seeking approval in all remaining states and the District of Columbia. The initial minimum value of the Reinsurance Trust was set at $20.0 million plus the amount of Montpelier Re’s reinsurance liabilities to such cedants (which were $54.8 million at December 31, 2010).  As of December 31, 2010, the fair value of all assets held in the Reinsurance Trust was $101.4 million. See Note 5.

9

Appendix B

NOTE 9.                         Income Taxes

The Company is domiciled in Bermuda and has subsidiaries domiciled in several other countries, including the U.S.  The Company and Montpelier 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 or Montpelier 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.

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 2016.  The Minister of Finance has recently indicated that this exemption will be extended to 2035 but the required legislation for this action has not yet been brought before the Bermuda legislature.

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 U.S. federal income taxes has been determined under the principles of a consolidated tax provision within the U.S. Internal Revenue Code and Regulations. The tax years open to examination by the Internal Revenue Service for these subsidiaries are from 2008 to present.

The Company’s U.K. and Swiss-domiciled subsidiaries are subject to income taxes in those jurisdictions.  The tax years open to examination by the HM Revenue & Customs for the Company’s U.K. subsidiaries and the Swiss Federal Department of Finance for MEAG, are from 2007 to present.

Montpelier’s consolidated income tax expense (benefit) for the years ended December 31, 2010, 2009 and 2008 consisted of the following:

As of December 31, 2010 and 2009, Montpelier had a current income tax asset of zero and $0.6 million, respectively.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for tax purposes.  An outline of the significant components of the Company’s deferred tax assets and liabilities follows:

11