![]() MAX CAPITAL GROUP LTD. Nasdaq: MXGL Investor Day Presentation February 22, 2008 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 EXHIBIT 99.1 |
![]() 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 update or revise publicly any forward-looking statement whether as a result of new information, future developments or otherwise. |
![]() Investor Day Overview N. James Tees Chief Risk Officer Max Capital Group Ltd. Diversified Investment Strategy W. Marston (Marty) Becker Chairman, & Chief Executive Officer Max Capital Group Ltd. Opening Remarks Followed by Overview and Strategy of Max Capital Group Ltd. Peter Minton Chief Operating Officer Max Capital Group Ltd. Risk Management & Reserves Angelo Guagliano President & Chief Executive Officer Max Bermuda Ltd. Underwriting Operations and P&C Insurance Joe Roberts Chief Financial Officer Max Capital Group Ltd. Financial Results Steve Vaccaro Chief Executive Officer Max Specialty Insurance Company Overview of Max Specialty Insurance Company W. Marston (Marty) Becker Closing Remarks John Doucette President – Reinsurance Division Max Bermuda Ltd. Chris Rutten President – Life Reinsurance Division Max Bermuda Ltd. Life Reinsurance Operations Reinsurance Operations |
![]() 4 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 |
![]() 5 Winning in A Softening Market Strategy to provide stable 15%+ ROE’s plays well in soft market Slightly lower ROE’s in good underwriting years, should do well in a softer market Focus is on consistent growth of book value per share Net income is more diversified, thus more sustainable Underwriting revenues are not dependent on a single product or source Insurance / Reinsurance, Short-tail / Long-tail More balanced portfolio of risk means less reliance on current years underwriting High and stable asset leverage provides a base 3.4x investable assets to surplus contributes 15% ROE (at 4.6% fixed asset return) 1 times greater leverage than peers provides 5% ROE advantage Advantaged asset strategy creates additional earnings power 60 basis points higher expected return provides 2% additional ROE High percentage of insurance ceded, transforms risky underwriting revenue into fees A 10 point profit on almost $300 million of ceded premium adds a stable 2% ROE Experienced / specialized underwriting teams hired for their ability / expertise Strong underwriting talent leveraged by outstanding technology Senior underwriters have 15 to 25 years of experience Competitive expense structure |
![]() 6 Straightforward, Well Capitalized Operating Entities Max Bermuda Ltd. www.maxbermuda.com $1.42 Billion Max Europe Holdings Limited www. maxeu.com Max Insurance Europe Limited Max Re Europe Limited Ireland Bermuda Max USA Holdings Ltd. $150 Million USA Max Capital Group Ltd. www.maxcapgroup.com Nasdaq: MXGL $1.53 Billion Switzerland Swiss Branch Max Specialty Insurance Services (Delaware) Max California Insurance Services Ltd. (California) Max Managers USA Ltd. (Delaware) Max Specialty Insurance Company (Delaware) www.maxspecialty.com |
![]() 7 Experienced Management Team Previous Experience Years Industry Experience N. James Tees Chief Risk Officer Stockton Reinsurance Ltd 23 Coopers & Lybrand W. Marston Becker Chairman, & Chief Executive Officer Trenwick 25 Royal Sun Alliance USA Orion Capital Peter Minton Chief Operating Officer Scudder Kemper Investments 24 General Reinsurance Company Morgan Stanley Angelo Guagliano President & Chief Executive Officer Max Bermuda Ltd. XL 29 Reliance National Prudential Re Joe Roberts Chief Financial Officer Overseas Partners Ltd 20 KPMG Moore Stephens Steve Vaccaro Chief Executive Officer Max Specialty Insurance Company Essex Insurance Company 30 |
![]() ![]() ![]() ![]() ![]() ![]() ![]() 8 Property Insurance Strategic Diversification & Expansion Of The Company Traditional Casualty Reinsurance Property / Cat Reinsurance $23.50 / share Common Offering 2003 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 2002 2004 2005 2006 2007 |
![]() 9 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 Medical Malpractice Reinsurance 2005 Property / Property - Cat Reinsurance 2006 Aviation 2007 U.S. Excess & Surplus Property Ocean Cargo / Inland Marine U.S. Casualty Multi – Peril |
![]() 10 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 Enterprise Risk Management |
![]() 11 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 14.8% 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 |
![]() 12 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 $27.54 |
![]() 13 Efficient Capital Management Dividends Repurchases ($ 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 |
![]() 14 (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 |
![]() Underwriting Operations & P&C Insurance Angelo Guagliano |
![]() 16 The Company Is Divided Into Four Underwriting Segments P&C Insurance – Insures primarily global Fortune 1000 clients offering Excess Liability, Professional Liability, Property and Aviation coverages P&C Reinsurance – Offering traditional and alternative risk coverage to reinsurance companies globally in Workers Comp, Med Mal, Excess Liability, Professional Liability, Property, Energy, Marine and Aviation Max Specialty – U.S. E&S insurer with non-admitted paper, and with admitted paper expected in 2008, focused on small to middle market clients offering Property, Excess Liability and Inland Marine coverage Life & Annuity – Provides reinsurance on closed blocks of Life, Disability, Pre- need, Annuity and Structured Settlement products to mid-size and large life insurance companies globally |
![]() 17 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: |
![]() 18 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 can be allocated rationally $831 $971 $820 $776 $895 (+17%) (-16%) (-5%) (+15%) |
![]() 19 Experienced Senior Underwriters - Insurance John Boylan CUO-General Liability XL Europe 26 AIG Lou Adanio CUO- Property Endurance Specialty Insurance 28 Cambridge Risk SCOR Reinsurance Jim Gray CUO-Professional Liability XL 24 Zurich American Insurance Company Lexington Insurance Company Previous Experience Years Industry Experience Olivier Marre CUO-Aviation Insurance La Reunion Aerienne 15 SITA |
![]() 20 P&C Insurance Exposure Type Casualty General Liability 131,515 $ 145,000 $ Professional Liability 157,450 $ 150,000 $ Total Casualty 288,965 $ 295,000 $ Specialty Property 53,027 $ 50,000 $ Aviation 40,935 $ 45,000 $ Total Specialty 93,962 $ 95,000 $ Total Insurance 382,927 $ 390,000 $ 12/31/2007 2008 GWP Plan |
![]() 21 Casualty Lines General Liability / Excess Liability Max Bermuda / Dublin Franchise Excess of Loss – Minimum Attachment $10M / Maximum Limit $25M Pharmaceuticals – Life Sciences Healthcare – Long-term Care, Hospitals, Medical Products Transportation – Freight Rails, Auto Mfgs, Truckers Heavy Industrial Construction – Project Wraps Offer Multi-year / Single Limit Programs when terms and pricing are strong Market Dynamics Overall down 10% to 15% Major Pharmaceuticals – Flat Other Pharms – Mid-size flat to down 10% / Smaller down 15% Long-term Care – Down 10% / Average, with few new competitors Hospitals – Down 10% tp 20% Rails – Flat Auto Mfgs – Down 5% to 10% Industrial – Down 5% to 10% |
![]() 22 Casualty Lines Professional Liability Max Bermuda / Dublin Franchise Excess of Loss – Minimum Attachment $20M / Maximum Limit $25M Directors & Officers / Management Liability Full coverage “Side ABC” / “Side A” only / Mgmt Liability for Professional Firms Errors & Omissions Specific Professions – Accountants / Consultants/ Lawyers Employment Practices Liability Primary Excess Market Dynamics Directors & Officers Stabilizing Market Capacity Pricing Weakness for Non-FI Accounts FI Accounts experiencing price increases along with tightening T&C due to Sub-prime Errors & Omissions Supply / Demand in balance Stable to slightly decreasing pricing EPLI Stable to slightly decreasing pricing Bermuda remains the preferred large account market |
![]() 23 Specialty Lines Property Max Bermuda / Dublin Franchise Excess of Loss & Pro-Rata Fortune 1000, Energy, Large Regional & Builders Risk Well engineered & protected risks Influential risk management department / loss control Accurate location level data Attach above loss frequency Evaluate loss history Technical price determined for account by layer by using risk and catastrophe models Actively manage cat aggregate Market Dynamics Restrictions on wind, earthquakes, flood and terrorism capacity (sublimits / exclusions) Percentage deductibles on named windstorm & CA earthquake Rates declining 15% to 20%; generally above technical price Deductibles / Retentions generally holding at high levels |
![]() 24 Specialty Lines Aviation Max Bermuda / Dublin Franchise Excess of Loss and Quota Share Major Airline Business General Aviation Market Dynamics 2007 difficult year for airlines Pricing seems to have leveled May be seeing rates reflect recent loss activity |
![]() Overview of P&C Reinsurance John Doucette |
![]() 26 Experienced Senior Underwriters – Reinsurance Previous Experience Years Industry Experience John Doucette President, Reinsurance Division Swiss Re 18 Tillinghast David Kalainoff CUO-Casualty Lines Transatlantic Reinsurance 27 Firemans Fund Continental Insurance Adam Mullan CUO-Specialty Lines ACE 20 Marsh McLennan Guy Carpenter |
![]() 27 P&C Reinsurance Exposure Type Casualty Medical Malpractice 53,138 $ 60,000 $ Workers Compensation 49,197 $ 45,000 $ General Casualty 16,716 $ 30,000 $ Professional Liability 33,640 $ 30,000 $ Total Casualty 152,691 $ 165,000 $ Specialty Property 89,197 $ 95,000 $ Aviation 34,095 $ 37,500 $ Marine & Energy 47,077 $ 33,500 $ Other Traditional 7,016 $ 14,000 $ Whole Account - ART 15,080 $ 5,000 $ Total Specialty 192,465 $ 185,000 $ Total Reinsurance 345,156 $ 350,000 $ 12/31/2007 2008 GWP Plan |
![]() 28 Casualty Lines Medical Malpractice Max Bermuda Franchise Working Layer Excess of Loss Physicians – Single state writers Hospitals – Primary on Small facilities / Excess on Large Retro Rated Market Dynamics Rate Reductions in Tort Reform Jurisdictions Decrease in frequency HPL Primary / low excess layers stable, High excess competitive Workers Comp Max Bermuda Franchise Working Layer Excess of Loss and Cat Excess of Loss, Quota Share Small to mid-sized, Regional Carrier Clients, State Funds Market Dynamics Loss Costs flat to down in Reform States Reinsurance rates and capacity stable, primary rates declining Frequency continues to decline but rising severity |
![]() 29 Casualty Lines General Casualty Max Bermuda Franchise Working Layer Excess of Loss and Quota Share Public Entity, Auto Liability and Residential Contractors Market Dynamics Original rates softening Public entity stable / residential contracting need to be cautious General softening of terms and conditions Professional Liability Max Bermuda Franchise Working Layer Excess of Loss and Quota Share D&O and Errors & Omissions Market Dynamics Rates Options backdating / Sarbanes effect Impact of Sub-prime in 2 half 2007 and into 2008 nd |
![]() 30 Specialty Lines Property Max Bermuda Franchise Excess of Loss - Cat and Per Risk USA Nationwide, USA Regional & International Some stand-alone Florida exposure Market Dynamics Pricing on Nationwides & Regionals / pressure on signings Florida Legislation / national cat fund Kyrill / UK Floods / Australia / other International losses – not much impact Aviation Max Bermuda Franchise Excess of Loss and Quota Share Major Airline Business / General Aviation Space Market Dynamics Original pricing softening Reinsurance pricing not softening as much Space market firming after losses in 2007 |
![]() 31 Specialty Lines Marine & Energy Max Bermuda Franchise Quota Share & Excess of Loss Onshore & Offshore Energy Market Dynamics Pressure on original rates worldwide Reinsurance rates showing some softening Other Lines Max Bermuda Franchise Terrorism, Agriculture and Whole Account Excess of Loss and Quota Share Market Dynamics Some decline in rates / increased competition Opportunistically look for attractive niches |
![]() Overview of Life Reinsurance Chris Rutten |
![]() 33 Previous Experience Life Reinsurance: Experienced Senior Underwriters Years Industry Experience Chris Rutten President Life Reinsurance Division ING Reinsurance 23 Security Life of Denver Art Palmer Senior Vice President Life Reinsurance Division Avon Consulting 20 Chalke Inc. Transamerica |
![]() 34 Life Reinsurance: Long-Tail, Reserve Buy-Out Business Closed block reserve buy-out transactions / almost no IBNR Approximately 3 deals per year, varying sizes Differentiated by: Business focus Detailed data focus Strong actuarial analysis Client and intermediary relationships Execution strengths Strong terms and conditions – integrated with underwriting Transparency Speed of completion Financial performance Investment strategy – integrated with underwriting Operational expense efficiencies Profitability of existing book Not pursuing conventional mortality risk premium business |
![]() 35 Life Reinsurance: A Profitable Niche Business Specialize in Investment spread business Asset heavy – mostly paid-up policies Predictable cash flows – long duration Minimal policyholder optionality Portfolio benefits Balance between longevity, mortality and health Small policies Diversified client base – largest client is 30% Business flow Target North America & European Life, Health and Annuity Companies Deal flow timing and size is seller driven Reserves Under Management 12/31/2007 $1.3 billion 64% 10% 16% 10% Pension Annuity Health Life Other |
![]() 36 Life Reinsurance: Premiums And Deposits 0 50 100 150 200 250 300 350 2003 2004 2005 2006 2007 $123 $211 $272 $44 $302 US$ millions 3 3 1 6 2 Number of transactions |
![]() 37 Life Reinsurance: Position Within Max Compelling strategic fit to Max Increase assets under management – founding strategy of Max Earnings diversification – long term income base through pricing cycles Business growth without crowding out capacity Profitable revenue growth in softening P&C markets 2000 – 2007 23 transactions completed with 15 counterparties Premiums and deposits in excess of $1.5 billion Reserves Under Management of $1.3 billion |
![]() 38 Life Reinsurance: No Surprises In Business Benign reinsurance business “Fixed” policy liabilities – virtually no interest sensitive products Full control over assets Simple reinsurance arrangements – very few tax, accounting, regulatory or other complexities Diligent underwriting Policies not newly underwritten – we know what we have Historic experience data – at individual policy level Information provided – subject to contractual warranties Data independently verified for accuracy Peer reviews of pricing mechanics and assumptions Strong administrative and reporting requirements Ongoing post-underwriting reporting and data audits |
![]() 39 Life Reinsurance: Helpful Analytics? It is a spread business No earnings recognized at inception of a deal Life reserves are Discounted with reserving interest, which accrues every period Locked-in per policy (except claims reserves and FAS97) Income emerges from: investment performance, expense performance and actuarial liability performance – all relative to pricing expectations Net investment margins generally dominate income 2007 performance Outperformed on the investment side (2006: slightly behind) Expense and actuarial liability performance off by $0.5 million (2006 ahead by over $5 million) 2007 transactions written in favorable environment for investment margins 4 quarter “losses and benefits” net of “premiums written” impacted by Increased reserves under management - sales in Q3 and Q4 Reserve true-ups concentrated in 4 quarter th th |
![]() Max Specialty Insurance Company Steve Vaccaro |
![]() 41 Max Specialty: Experience Mike Miller SVP – Marine – Max Specialty Firemans Fund 24 William H McGee Previous Experience Years Industry Experience Bryan Sanders EVP – Contract Binding – Max Specialty E&S Division, Hilb, Rogal, & Hobbs 25 Dominion Specialty Group John Hahn SVP – Brokerage Division – Max Specialty Essex Insurance Company 15 Buddy Anckner President – Casualty Division Max Managers USA Max Bermuda 25 XL Capital Steve Vaccaro CEO - Max Specialty Essex Insurance Company 30 |
![]() 42 Max Specialty Insurance Company Start up operation 2007 - Max Specialty acquired April 2007 Nationwide E&S Underwriter of Property, Casualty and Marine insurance, focused on profitable excess and surplus lines segment of the commercial insurance industry Proven management team with a consistent record of profitability – instant marketplace credibility Licensed in Delaware and operating on a surplus lines non-admitted basis in 46 other states. Approvals pending in California, Colorado and New Hampshire Producer base of a select group of wholesale brokers and regional MGA’s with whom management has enjoyed close relationships for 20+ years Current employees – approximately 90 Differentiated client base and distribution network vs Bermuda and Dublin Affiliated service company in San Francisco MGU – Max Managers located in New York and Northern California Two distinct channels for business – brokerage and contract binding, providing stability through all market cycles 2007 Gross Premium Written - $48 Million 2008 Plan Gross Premium Written - $155 Million Experienced underwriting staff in all product lines with proven track records of profitable growth Having 3 divisions should allow us to manage market cycles |
![]() 43 Underwriting: Overview / Products Significant Product Diversification allows us to reallocate resources as market cycles change Brokerage Property catastrophe exposed-layered accounts (maximum gross policy limit per risk expected to be $5 MM; maximum net exposure per risk expected to be $750,000) Property non-catastrophe exposed Middle market Property & Casualty Brokerage Casualty Umbrella and X/S liability Inland marine Ocean marine Marine Inland Marine Ocean Marine MGA / Contract Binding Property non-catastrophe exposed Casualty Inland marine Umbrella and X/S liability MGU / Max Managers USA Casualty insurance for healthcare industry clients Other coverages to follow over time |
![]() 44 Relationships And Risk Management Core Distribution (Long time close relationships) 80 Wholesale Brokers with 20 year track records/relationships (Brokerage Division) 83 Managing General Agencies (Contract Binding Division) Underwriting transparency with limited authority and real time aggregation and monitoring MGA – business closely managed and audited for compliance to underwriting authority levels Offices in: Richmond, VA San Francisco, CA New York, NY Horsham, PA Atlanta, GA Dallas, TX Underwriting Discipline Underwriting profit, not top line growth for the sake of marketshare Compensation reward based on underwriting profit and ROE Known as a company with strong underwriting skills to solve a client’s insurance problem. Offers alternatives rather than declinations. |
![]() Diversified Investment Strategy N. James Tees |
![]() 46 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 |
![]() 47 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 |
![]() 48 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 $4.2 million Alternative asset portfolio net short sub-prime at December 31, 2007 Based upon stress testing, we expect no principal losses from sub-prime-backed bonds ($ millions) 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 |
![]() Risk Management & Reserves Peter Minton |
![]() Managing Risk For Maximum Reward 50 CAPITAL CAPITAL By measuring and managing risk across the balance sheet . . . Product Mix, Returns & Volatility Asset Mix, Returns & Volatility Retrocession and Reserving Dividends & Leverage …we can maximize shareholder value. |
![]() 51 Leading Edge Risk Management State-of-the-art Enterprise Risk Management System (ERMs) Integrated asset and liability risk management and accounting platform Deals are tracked and modeled from submission through termination Probability of surplus decline key measure Policy is to manage probable maximum loss to: $300 million Cat / $100 million Aviation / $40 - $60 million other Allocating capital to maximize return Capital is allocated based upon downside risk Risks are carefully analyzed & modeled – every risk has a model Every transaction priced to target ROE Aggregation / accumulations tracked Across insurance, reinsurance, & assets Reinsurance is purchased to manage: Line size Clash / contagion Aggregation of exposure |
![]() 52 A Robust Reserving Process Actuarial work done at time of pricing serves as foundation Frequency / severity or loss ratio picks Deal structure models Updated information posted by claims and accounting departments via ERMs Quarterly internal actuarial reserving review Presented to Audit committee Selected transactions greater than $10 million are reviewed by external auditors 99% coverage on insurance transactions 90% coverage on reinsurance transactions “Best Practice” annual review performed by external actuarial firm Reserves set internally Ground-up review performed by Ernst & Young actuaries Final review, testing and attestation by KPMG actuaries Favorable commutations of transactions in 2003, 2004, 2005, 2006 and 2007 High Percentage of IBNR in our insurance reserves |
![]() 53 Stable Long Duration Liabilities Compliment Underwriting Gross Reserves & Deposits by Risk Category Structured 17.9% Life 34.0% Insurance 22.9% Alternative 1.4% Traditional 23.7% Gross Reserves & Deposits by Exposure Type PL 20.1% Annuity 21.5% StrStl 2.2% Preneed 1.7% Aviation 1.9% Prop 2.7% WA 12.9% WC 10.9% Disability 4.4% Indl Life 3.9% GL 12.3% MM 3.1% M&E 2.0% % age # of Exposure Type Exposure Deals Aviation 1.91 693 Marine, & Energy 2.02 77 General Liability 12.33 610 Medical Benefits 0.06 19 Medical Malpractice 3.07 193 Professional Liability 20.10 1604 Property 2.70 1410 Whole Account 12.86 41 Workers Compensation 10.91 367 Total P&C 65.97 5014 Total P&C Reserves 2,479,102 Disability 4.40 7 Indl Life 3.93 3 Post Retirement Medical 0.24 1 Preneed 1.70 1 Structured Settlements 2.23 1 Annuities 21.52 3 Total Life 34.03 16 Total Life Reserves 1,278,797 Total Reserves 3,757,899 Average Size - P&C 494,436 Largest P&C Deal 315,000,000 Average Size - Life 79,924,842 Largest Life Deal 468,425,838 |
![]() Financial Results Joe Roberts |
![]() 55 Profitable Financial Trends Despite Hurricanes In 2005 Gross Premiums Written ($ 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 $0.19 2003 2004 2005 2006 2007 16.5% 15.8% 17.3% 20.7% 0% 5% 10% 15% 20% 25% 1.0% |
![]() 56 A Growing, Global Insurance / Reinsurance Company Invested Assets (Ratio to Shareholders’ Equity) Operating Cash Flow Shareholders’ Equity (Book Value per Share) Dividends Per Share ($ 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 |
![]() 57 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 $4.81 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) |
![]() 58 Leverage Assets to Surplus: 3.4x P&C Reserves to Surplus: 2.3x P&C Premium to Surplus: 0.4x - 0.6x (Gross) 0.3x – 0.4x (Net) Max’s Expected 2008 Risk / Reward Position Asset & Underwriting Assumptions Asset Mix (Cash/FI/MDS): 5%/75%/20% Asset Return (Cash/FI/MDS): 4.4%/5.0%/8.0% Total Combined Ratio: 91% – 93% Max Capital Group - Cumulative ROE Distribution - Total Book -30 -20 -10 0 10 20 30 40 1 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 99 Probability of Being at or Below ROE Property Loss Ratio ROE 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 11.8% 12.5% 13.1% 13.8% 14.5% 15.1% 15.8% 16.4% 17.0% 17.7% 18.3% 18.9% 86.9% 17.0% 87.9% 16.7% 88.9% 16.3% 88.9% 15.9% 90.9% 15.5% 91.9% 15.1% 92.9% 14.7% 93.9% 14.2% 94.9% 13.8% 95.9% 13.3% 96.9% 12.9% 97.9% 12.4% 12.5% 18.8% 32.5% 17.0% 52.5% 15.1% 72.5% 13.2% 92.5% 11.2% 112.5% 9.2% 132.5% 7.2% 152.5% 5.1% 172.5% 2.9% 192.5% 0.7% 212.5% -1.5% 232.5% -3.8% MDS Return ROE Combined Ratio ROE |
![]() 59 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 |
![]() 60 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) |
![]() 61 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 thealternative 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 |
![]() Final Remarks W. Marston (Marty) Becker |
![]() 63 Winning in A Softening Market Strategy to provide stable 15%+ ROE’s plays well in soft market Slightly lower ROE’s in good underwriting years, should do well in a softer market Focus is on consistent growth of book value per share Net income is more diversified, thus more sustainable Underwriting revenues are not dependent on a single product or source Insurance / Reinsurance, Short-tail / Long-tail More balanced portfolio of risk means less reliance on current years underwriting High and stable asset leverage provides a base 3.4x investable assets to surplus contributes 15% ROE (at 4.6% fixed asset return) 1 times greater leverage than peers provides 5% ROE advantage Advantaged asset strategy creates additional earnings power 60 basis points higher expected return provides 2% additional ROE High percentage of insurance ceded, transforms risky underwriting revenue into fees A 10 point profit on almost $300 million of ceded premium adds a stable 2% ROE Experienced / specialized underwriting teams hired for their ability / expertise Strong underwriting talent leveraged by outstanding technology Senior underwriters have 15 to 25 years of experience Competitive expense structure |
![]() 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 Day Presentation February 22, 2008 |