I N S U R A N C E / R E I N S U R A N C E B E R M U D A I R E L A N D U N I T E D S T A T E S MAX CAPITAL GROUP LTD. Nasdaq: MXGL Investor Presentation as of / year ended December 31, 2007 Exhibit 99.2 |
2 INFORMATION CONCERNING FORWARD LOOKING STATEMENTS This presentation includes statements about future economic performance, finances, expectations, plans and prospects of the Company that constitute forward-looking statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those suggested by such statements. For further information regarding cautionary statements and factors affecting future results, please refer to the Company’s most recent Annual Report on Form 10-K , Quarterly Reports on Form 10-Q filed subsequent to the Annual Report and other documents filed by the Company with the SEC. The Company undertakes no obligation to publicly update or revise any forward-looking statement whether as a result of new information, future developments or otherwise. |
3 Max Capital Today Global underwriter of specialty insurance and reinsurance focused on risk adjusted returns and book value growth Operating subsidiaries in Bermuda, Ireland and United States Highly experienced management and underwriting teams with proven track record through all market cycles Over 200 employees worldwide Diversified business mix balanced between insurance and reinsurance, long and short tail exposures and geographic spread of risk Growth through opportunistic expansion and addition of product lines Strategic initiatives focus on value creation through all product cycles Portfolio approach to risk through integration of asset / liabilities for all transactions Culture focused on risk and capital management Custom pricing models for each class of business with emphasis on ROE Total invested assets of $5.1 billion represents a 3.2:1 ratio of invested assets to capital deployed in a risk averse, enhanced return investment strategy $1.6 billion of shareholders’ equity at December 31, 2007 |
4 Property Insurance Strategic Diversification & Expansion Of The Company Traditional Casualty Reinsurance Property / Cat Reinsurance $23.50 / share Common Offering Structured & Alternative Life & Annuity Insurance Reinsurance Specialty MDS allocation % - 5% 200 400 600 800 1,000 1,200 1,400 32.2% 31.5% 31.8% 29.1% 23.5% 20.7% 10% 15% 20% 25% 30% 35% 40% 2002 2003 2004 2005 2006 2007 35.0% Casualty Insurance Bermuda / Dublin Property / Cat Reinsurance $23.50 / share Common Offering U.S. E&S insurance Max USA $100m Senior Debt Issue 2004 2005 2006 2007 2003 2002 |
5 Identifying & Recruiting “Franchise Players” Has Been Instrumental In Our Success Experienced & highly quantitative underwriting teams Lead underwriters average over 20 years in the business High percentage of employees hold professional designations 2004 Property 2003 Excess Liability Professional Liability 2005 Property / Property - Cat Reinsurance 2006 Aviation 2007 U.S. Excess & Surplus Property Ocean Cargo / Inland Marine U.S. Casualty Multi – peril crop |
6 Enterprise Risk Management Diversified Product Offering Operating Strategy Focused on niches / specialties Opportunities that reward our specialized knowledge and relationships Marketing and distribution efforts that emphasize building brand awareness Dedication to customer service Expand Excess and Surplus lines business in the U.S. Manage property catastrophe aggregate exposure on a 1:250 year basis not to exceed 25% of beginning year equity 2008 Target – less than 20% Target product classes where we can invest resources and “intellectual capital,” which leads to long–term franchise value Strong balance sheet supported by prudent reserving practices Maintain financial strength ratings and pursue an upgrade Reinsurance purchased to manage exposures and pricing cycles State-of-the-art systems, risk controls Capital allocated to maximize return on every transaction Specialty Lines Underwriting Operations |
7 Seek to achieve high quality, stable and consistent ROEs Target ROE of 15% over the market cycle Operating ROE > 15% in 4 of last 5 fiscal years, 2005 positive ROE despite Hurricanes KRW Compound annual ROE of 14.7% over last 5 years Lower volatility of ROE Do well in the good years - 15% to 20% ROE Have a positive ROE in the bad years Our most highly respected and valued competitors have high Sharpe ratios Willing to trade some expected ROE for lower volatility of ROE Financial Objective – Grow Book Value / Create Shareholder Value Mean ROE vs Std Dev of ROE Annual Data 2003 to 2007 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 0% 5% 10% 15% 20% 25% 30% 35% Std Deviation of ROE ACGL AXS ACE PRE MXGL TRH RE ENH RNR AWH AHL PTP* XL IPCR* MRH* * 2007 ROE is based on annualized 9/30/07 information |
8 5 Years Of Growth: Annualized ROE of 14.8% Book Value Increased 88.5% * Year of Hurricanes KRW. Max was one of the few insurance/reinsurance companies among its peers that were profitable in 2005. $0.00 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 2003 2004 2005* 2006 2007 2% 6% 10% 14% 18% 22% 26% 30% 19.1% 17.0% 0.9% 16.8% 20.4% $16.88 $19.70 $20.16 $23.06 $27.54 |
9 Efficient Capital Management Dividends Repurchases ($ in thousands) Strong and flexible capital structure 2005: $258 million Equity Offering - launched Property Cat Reinsurance Operations 2007: Max USA $100 million Senior Debt Offering - launched U.S. Excess and Surplus Lines Insurance Company Manage exposures to preserve capital Opportunistic share repurchases $100 million of Repurchase Authorization as of Feb. 12, 2008 Increased dividends each year since inception ($ in thousands) $3,788 $5,487 $8,955 $14,273 $19,164 $3,095 $4,850 $7,360 $17,624 $114,755 $0 $25,000 $50,000 $75,000 $100,000 $125,000 $150,000 2003 2004 2005 2006 2007 Dividends $ 51,667 Share Repurchases 147,684 Total $199,351 2003- 2007 Summary |
10 (1) Defined as share price appreciation plus reinvested dividends cumulatively over the time period, as of 2/8/2008. (2) Note: Figures are calculated from the IPO date. Source: Merrill Lynch Cumulative Total Shareholder Returns (1) (2) (2) (2) 1 Year 2 Years 5 Years 75.8% 37.4% 171.4% 150.1% 136.8% 104.5% 89.2% 81.3% 53.7% 47.2% 41.5% 6.4% (18.9)% S&P 500 S&P P&C MXGL ORH ACGL ENH AXS PRE RNR PTP AHL IPCR MRH (5.1)% (4.9)% (2.9)% 5.0% 5.7% 9.2% 15.5% 15.7% 16.0% 18.2% 18.8% (23.2)% (6.3)% S&P 500 S&P P&C ENH MXGL AXS PRE AHL PTP RNR ACGL MRH ORH IPCR (6.4)% 4.3% 11.2% 16.6% 26.8% 27.8% 31.8% 34.0% 39.5% 40.1% 56.9% (13.6)% 9.3% S&P 500 S&P P&C ORH AHL PRE ENH ACGL RNR AXS PTP MXGL IPCR MRH Peer Comparison: Max Has Outperformed The S&P 500, The S&P Insurance Sub-Index And Many Of Its Peers Over The Past 5 Years |
11 Diversified Premium Mix: A Key Differentiator Property Casualty Insurance Reinsurance Incumbent (Re) Insurers Class of 2001 Class of 2005 Ariel Re FSR IPCR VR Lancashire Ironshore MRH PTP AWH RNR AHL ENH ACGL AXS PRE TRH RE WTM XL ACE Harbor Point Source: Merrill Lynch Max Capital Group Ltd. Bermuda Underwriters: |
12 Diversified Revenue Sources / Product Lines P&C Annual Gross Premiums Written ($ in millions) Non-recurring additional premiums on prior years’ contracts of $182 million Total P&C Insurance / Reinsurance excluding Alternative Risk and non- recurring additional premiums on prior years’ contracts (year-on-year change) 0 100 200 300 400 500 600 700 800 900 1000 2004 2005 2006 2007 2008 Plan Max Specialty P&C Insurance P&C Reinsurance P&C Alternative Revenue not dependent on single source Capital & risk allocated rationally 10% ROE without writing business $831 $971 $820 $776 $895 (+17%) (-16%) (-5%) (+15%) |
13 P&C Insurance: Bermuda / Dublin Niche – Oriented Focus Target: Working layer excess business Larger customer - Fortune 1000 Customer-oriented approach: Responsive and innovative Consider toughest classes of business Offer multi-year programs Flexible in program attachment points Work with all leading brokers Underwritten in Bermuda and Dublin Sub-prime related reserves - approximately $18 million Combined ratio: 2007: 86% 2006: 71% Gross Premiums Written – 2007 $383 million By Exposure Aviation 8% Excess Liability 35% Professional Liability 41% Property 16% |
14 P&C Reinsurance: Bermuda / Dublin Diversification & Flexibility Emphasized Target: Working layer excess business / quota share business Specialty / niche focus Customer-oriented approach: Quick turnaround Line-specific expertise Net line underwriter (stability of capacity) Cross-class capability Modeling and structuring capabilities Work with all leading brokers Underwritten in Bermuda and Dublin Combined ratio: 2007: 84% 2006: 94% By Exposure Gross Premiums Written – 2007 $345 million Aviation 10% Excess Liability 5% Medical Malpractice 15% Other 2% Professional Liability 10% Property 26% Marine & Energy 14% Whole Account 4% Workers Compensation 14% |
15 Growth Initiative: Max Specialty Insurance Company 2007 Start-Up: Nationwide underwriter of excess and surplus lines niches based in Richmond, VA Delaware licensed Approved on a non-admitted basis in 46 other states Brokerage and Contract Binding operations commenced April 2007 Select group of national brokers and regional MGA’s with 20+ years relationships Current Products Property-cat & non cat Umbrella / xs Liability Inland Marine / Ocean Cargo (New 2008) Specialty Casualty (New 2008) 90 employees / 6 U.S. locations Long-term underwriting objectives: Products priced and underwritten so net incurred loss ratios approximate 55% Expense ratio: approximately 35% Combined ratio: approximately 85% Gross Premiums Written - 2007 $48 million By Exposure Property 71% Excess liability/general liability 26% Marine 3% * As of February 14, 2008 |
16 Life Reinsurance: Long-Tail, Reserve Buy-Out Business Specialize in: Investment spread business In force, closed / ring-fenced books Mortality, morbidity & longevity Predictable cash flows Asset heavy – no interest sensitive liabilities Strategy: Leveraging underwriting skills with low volatility alternative investments Focus on closed block reserve buy-out transactions Almost no IBNR Differentiated by: Detailed data focus Strong actuarial analysis Bermuda efficiencies Gross Premiums Written Reserves & Deposits 12/31/2007 $1.3 billion Annuity 70% Life 16% Health 14% Number of Deals Written 0 50 100 150 200 250 300 350 2003 2004 2005 2006 2007 $108 $212 $275 $45 $302 3 3 1 6 US$ Millions |
17 Diversified And Strategic Asset Allocation Average quality of AA / Maximum Baa of 2% Diversification by sector and issuer No CDO’s, CLO’s, SIV’s or other highly structured securities Duration and currency matched to liabilities Portfolio externally managed by investment managers who compete for assets based on performance Diversification by strategy with concentration limits in any particular fund Rapid liquidity required Return objective – 300 bps over risk free rates with bond like volatility Rigorous manager selection and monitoring process Hedge fund accounting requires quarterly mark to market to flow through operating income 0% 5% 10% 15% 20% 25% 30% 35% 40% Distressed Diversified Equity Long / Short Event Driven Arbitrage Global Macro Credit Long / Short Emerging Markets Fixed Income Arbitrage Opportunistic Tsy / Agy Aaa Aa Baa Investment Portfolio: Traditional Alternative Allocation 79% 21% Target 80% 20% Alternative investments part of “capital” Fixed maturities portfolio supports reserves |
18 Investment Strategy: Risk Averse Enhanced Returns Standard Deviation 60 Months as of December 31, 2007 Max Fixed Maturities Merrill Lynch Master Bond Index MDS (Max Fund of Funds) Max Total Portfolio S&P 500 MFIX MLMBI MDS SP500 MAX 0 -0.5 -1 -1.5 -2 -2.5 -3 -3.5 -4 -4.5 -5 -5.5 -6 -6.5 -7 -7.5 -8 -8.5 -9 -3.24 -3.65 -4.34 -8.61 -3.05 Annual Return 60 months as of December 31, 2007 MFIX MLMBI MDS SP500 MAX 12.5 12 11.5 11 10.5 10 9.5 9 8.5 8 7.5 7 6.5 6 5.5 5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 3.99 4.49 10.98 12.12 6.40 |
19 Investments With Exposure To Sub-prime And Alt-A Significant and growing over-collateralization Most with 30-50% over-collateralization Over-collateralization on most is growing, and has increased in the last 3 months Through December 31 default and delinquency rates are generally in the low single digits to low teens range At December 31, 2007, unrealized loss is approximately $4.2 million Alternative asset portfolio net short sub-prime at December 31, 2007 Based upon stress testing, we expect no principal losses from sub-prime-backed bonds Assets with Sub prime content Weighted AA Amortized Market Value Average Life Senior Junior Cost Subprime Exposure Pre-2005 3.5 7.8 $ 0.5 $ 2.6 $ 10.9 $ 10.6 $ 2005 2.4 3.3 $ - $ 3.4 $ 6.7 $ 6.4 $ 2006 3.0 32.9 $ 5.0 $ - $ 37.9 $ 34.9 $ 2007 3.3 2.5 $ - $ - $ 2.5 $ 2.3 $ Total Subprime Exposure 3.0 46.5 $ 5.5 $ 6.0 $ 58.0 $ 54.2 $ Alt-A Exposure Pre-2005 4.2 7.1 $ - $ - $ 7.1 $ 7.0 $ 2005 1.7 - $ 20.6 $ - $ 20.6 $ 20.5 $ 2006 1.4 6.9 $ 10.0 $ - $ 16.9 $ 16.8 $ 2007 3.0 4.5 $ - $ - $ 4.5 $ 4.4 $ Total Alt-A Exposure 2.1 18.5 $ 30.6 $ - $ 49.1 $ 48.7 $ SUBPRIME + ALT- A Exposure 2.6 65.0 $ 36.1 $ 6.0 $ 107.1 $ 102.9 $ Outstanding Exposure by Vintage AAA ($ millions) |
20 Profitable Financial Trends Despite Hurricanes in 2005 Gross Premiums Written ($ in millions) P&C Combined Ratio Operating Earnings Per Share (Diluted) Operating ROE $1,010 $1,044 $1,246 $865 $1,078 0 $300 $600 $900 $1,200 $1,500 2003 2004 2005 2006 2007 Life $108 Life $212 Life $275 Life $45 Life $302 88% 86% 106% 94% 100% 0% 20% 40% 60% 80% 100% 120% 2003 2004 2005 2006 2007 $2.58 $2.70 $3.52 $4.81 $- $1.00 $2.00 $3.00 $4.00 $5.00 2003 2004 2005 2006 2007 $0.19 2003 2004 2005 2006 2007 16.5% 15.8% 17.3% 20.7% 0% 5% 10% 15% 20% 25% 1.0% |
21 A Growing, Global Insurance / Reinsurance Company Invested Assets (Ratio to Shareholders’ Equity) Operating Cash Flow Shareholders’ Equity (Book Value per Share) Dividends Per Share ($ in millions) $2,637 (3.5:1) $3,515 (3.9:1 $4,223 (3.6:1) $4,536 (3.3:1) $5,123 (3.2:1) $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 2003 2004 2005 2006 2007 $397 $607 $395 $529 $443 $0 $100 $200 $300 $400 $500 $600 $700 2003 2004 2005 2006 2007 $763 ($16.88) $903 ($19.70) $1,186 ($20.16) $1,390 ($23.06) $1,584 ($27.54) $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 2003 2004 2005 2006 2007 $0.09 $0.12 $0.18 $0.24 $0.32 $0.00 $0.05 $0.10 $0.15 $0.20 $0.25 $0.30 $0.35 2003 2004 2005 2006 2007 |
22 Gross Premiums Written - $1,045 billion 2008 Est. 2007 Actual Property & Casualty Insurance $390 million $383 million Property & Casualty Reinsurance $350 million $345 million Max Specialty $155 million $ 48 million Life & Annuity Reinsurance $150 million $302 million Combined Ratio Property & Casualty Insurance 88% 86% Property & Casualty Reinsurance 92% 84% Max Specialty 120% (57% loss ratio) 530% (82% loss ratio) Operating Earnings Per Share (diluted) $3.90 - $4.20 Alternative investments return 8% 16.97% Key Assumptions 2008 Guidance No reserve releases/commutations Continued capital management – share repurchases No acquisitions Normal catastrophes (P&C combined ratio includes approx. 4%-6% for normally expected catastrophes) $4.81 |
Additional Financial Information |
24 Gross Premiums Written $1,078 $865 Net Premiums Earned $818 $665 Net Investment Income 188 150 Net Gains on Alternative Investments 187 85 Net Realized Gains (Losses) on Sale of Fixed Maturities (4) (6) Other Income 1 1 Total Revenues 1,190 895 Total Losses, Expenses & Taxes 887 678 Net Income $303 $217 Property & Casualty Underwriting Loss Ratio 64% 68% Expense Ratio 24% 18% Combined Ratio 88% 86% Year - End Results 2006 ($ in millions) 2007 |
25 Cash & Fixed Maturities $4,061 $3,470 Alternative Investments 1,062 1,066 Premium Receivables 433 391 Losses Recoverable 578 538 Other Assets 403 384 Total Assets $6,537 $5,849 Property & Casualty Losses $2,334 $2,335 Life & Annuity Benefits 1,204 896 Deposit Liabilities 221 204 Funds Withheld 169 255 Unearned Premium 440 436 Bank Loan 330 210 Senior Notes 100 - Other Liabilities 155 123 Total Liabilites $4,953 $4,459 Shareholders' Equity $1,584 $1,390 $6,537 $5,849 Strong Balance Sheet December 31, 2006 December 31, 2007 ($ in millions) |
26 Supplemental Investment Data – December 31, 2007 Past Performance should not be considered to be a reliable indicator of future performance Fair Value Investment Last Year Last (in 000's) Distribution 3 Months to Date 60 months* Cash and Fixed Maturities 4,060,883 $ 79.3% 1.86% 5.11% 3.99% Commodity Trading Advisers - $ 0.0% 0.00% 6.63% 7.31% Distressed Securities 168,050 3.3% 5.28% 15.74% 21.52% Diversified Arbitrage 161,870 3.2% -3.47% 15.87% 8.12% Emerging Markets 98,882 1.9% 3.33% 18.53% 18.36% Event-Driven Arbitrage 170,563 3.3% 8.14% 36.14% 18.32% Fixed Income Arbitrage 32,265 0.6% 8.78% 25.04% 8.71% Global Macro 69,092 1.3% 6.48% 13.67% 9.89% Long / Short Credit 51,512 1.0% 1.19% 3.41% 10.32% Long / Short Equity 269,959 5.3% 8.94% 26.94% 11.75% Opportunistic 35,600 0.7% 2.73% 20.38% 19.37% MDS *** 1,057,793 20.6% 4.11% 16.78% 10.98% Reinsurance Private Equity 3,941 0.1% 68.23% 97.33% 8.81% Alternative Investments 1,061,734 $ 20.7% 4.27% 16.97% 10.28% Total Investments 5,122,617 $ 100.0% 2.45% 10.38% 6.40% Alternative Investment Return Data **: MDS Performance History *** – 60 months ended December 31, 2007 Largest monthly gain 4.15% Largest monthly loss (2.04%) Largest quarterly gain 6.07% Largest quarterly loss (2.72%) Average monthly gain 1.40% Average monthly loss (0.83%) Average quarterly gain 3.56% Average quarterly loss (0.89%) Months with a gain 46 Months with a loss 14 Quarters with a gain 16 Quarters with a loss 4 % of months with a gain 77% Quarterly standard deviation 2.47% % of quarters with a gain 80% Annual standard deviation 4.35% Largest drawdown **** (5.04%) Monthly performance 2003 2004 2005 2006 2007 January 1.63% 1.75% 0.16% 2.75% 1.28% February 1.40% 1.28% 1.69% 0.39% 1.50% March (0.18%) 1.18% (0.61%) 1.22% 1.90% April 2.03% 0.03% (0.65%) 1.89% 2.30% May 3.02% (0.87%) (0.68%) (1.74%) 2.59% June 0.92% 0.70% 1.20% (0.66%) 0.85% July (0.24%) 0.03% 1.33% (0.71%) 0.99% August 0.96% (0.02%) 0.98% 0.02% (1.62%) September 2.63% 0.04% 1.84% (2.04%) 1.85% October 0.98% 1.04% (1.45%) 1.37% 4.15% November 0.56% 2.54% 0.61% 1.81% 0.10% December 1.85% 1.74% 1.37% 1.96% (0.13%) Quarterly performance Q1 2.88% 4.27% 1.22% 4.41% 4.75% Q2 6.07% (0.15%) (0.14%) (0.54%) 5.83% Q3 3.37% 0.06% 4.21% (2.72%) 1.18% Q4 3.43% 5.41% 0.51% 5.22% 4.11% Annual return 16.67% 9.81% 5.88% 6.30% 16.78% * Annualized **The percentages shown under the alternative investment return data relate only to the performance of our alternative investments held by MDS. *** Net of all fees **** Largest drawdown represents the largest decline in value between two NAV peak values. Periodic Rate of Return |
I N S U R A N C E / R E I N S U R A N C E B E R M U D A I R E L A N D U N I T E D S T A T E S MAX CAPITAL GROUP LTD. Nasdaq: MXGL Investor Presentation as of / year ended December 31, 2007 |