![]() 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 Multi Peril Crop Insurance June 2008 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. |
![]() 3 Multi-Peril Crop Insurance – The Basics What is multi-peril crop insurance (MPCI)? MPCI has been administered by the Federal Crop Insurance Corporation (FCIC), an agency of USDA, since the 1930s and provides the American farmer with a comprehensive insurance-based risk management tool Major legislation was enacted in 1980 enlisting, for the first time, private insurance companies to sell, service and share MPCI risk under what is now known as the Standard Reinsurance Agreement (SRA) Coverage is provided for loss of yield and/or revenue due to any act of nature Losses due to drought or excessive rainfall/flood are the biggest concern Major products: Cat: loss of yield excess of a large deductible - 50% of production history Buy-up: loss of yield excess of a smaller deductible - 15% to 50% Revenue: loss of revenue due to loss of yield and/or change in price Government Subsidies Subsidizes premium paid by farmers Reimburses insurer for most of its administrative and operating costs Provides attractive proportional and non-proportional reinsurance (SRA) |
![]() 4 Why Crop Insurance? Controlled environment – Government (FCIC) oversees all aspects of MPCI business Policy forms Underwriting Rates Loss adjustment, etc. Short tail – Nearly all claims settled within 90 days following the contract year Excellent statistical base Does not aggregate with other property lines SRA – Government reinsurance program provides framework for risk selection Good industry results What is the Standard Reinsurance Agreement? SRA – A reinsurance contract between the government (FCIC) and the private insurance company The SRA allows ceding companies to cede or designate each MPCI policy to one of the following seven funds: Assigned Risk Developmental – Cat Developmental – Buy-up Developmental – Revenue Commercial – Cat Commercial – Buy-up Commercial – Revenue Ceding companies utilize historical experience, market knowledge and underwriting models to determine fund allocation and net risk exposure Multi-Peril Crop Insurance – The Basics |
![]() 5 What are the most common causes of MPCI losses? Multi-Peril Crop Insurance – The Basics Multiple Peril Crop Insurance Drought, 40% Excess Moisture, 24% Hail, 8% Freeze, 5% Heat, 4% Disease, 4% Other, 15% |
![]() 6 U.S. Multi-Peril Crop insurance industry results have been good: Multi-Peril Crop Insurance – Industry Results Most recent significant industry loss years were 1988 (drought) and 1993 (excess moisture) Underwriting Profit Net of SRA is before deduction of Administrative and Operating (A&O) and other expenses. Industry A&O and other expenses net of government reimbursement are estimated to be approximately 5% of net retained premium Figures in Millions Retained Loss Ratio Underwriting Gross Premium Gross of Profit Year Premium Net of SRA SRA Net of SRA 1998 1,876 1,592 92% 18% 1999 2,312 1,837 103% 15% 2000 2,537 1,894 102% 15% 2001 2,978 2,373 100% 15% 2002 2,910 2,294 139% -2% 2003 3,434 2,606 95% 15% 2004 4,186 3,140 79% 22% 2005 3,946 3,044 59% 32% 2006 4,708 3,684 75% 23% 2007(est) 6,550 5,158 52% 33% 2008(est) 8,800 7,000 |
![]() 7 Is 2008 = 1993? – It’s Too Early To Tell While the press has declared that 2008 is 1993 there are important differences The excess moisture problem was far more widespread in 1993 than today Portfolios are geographically diverse, losses in multiple areas needed for loss ratios >110% In 1993 moisture problems persisted and worsened into July and August Additionally low temperatures in July and August 1993 prevented ripening of crops If the flooding remains mainly in Iowa, we would expect 2008 to be less severe than 1993 If floods begin to recede and the summer is warm, early losses may be moderated |
![]() 8 2008 Compared To 1993 - June |
![]() 9 How 1993 Progressed |
![]() 10 What If 2008 Is 1993 (Floods) Or 1988 (Drought) Due to the mechanics of the SRA and geographic dispersion, losses to insurers tend to be more subdued A 500% gross loss ratio in Iowa becomes a 200% net loss ratio to insurers If Iowa is 10% of the portfolio this adds only 11 loss ratio points to the expected loss cost Looking at previous severe events, if Max runs its current crop portfolio against the actual 1993 (floods) or 1988 (drought) results / events: 1993 yields a net loss ratio of approximately 120% or a loss of approximately $20 million 1988 yields a net loss ratio of approximately 135% or a loss of approximately $35 million External modeling services have estimated that a repeat of 1993 would be less costly to the industry The differences arise from several factors including: premium levels, the impact of increased commodity prices on coverages, broader geographic spread, and increased farmer participation levels |
![]() 11 Recent Press Articles Have Missed Some Of The Facts Several statements in the media seem to be overstating the potential for loss: “The flood is shaping up to be as bad as it was in 1993, when insurers in Iowa lost almost $5 for every $1 they made in premium” - Business Week Online – June 17, 2008 In actuality any one state could run a maximum 500% gross loss ratio however as stated above, due to the government reinsurance programs, insurers net loss ratios in those states would likely be in the 200% range. Additionally portfolio diversification (i.e. many states may still be profitable) would likely reduce the overall portfolio net loss ratios into the low 100s “The loss ratio for crop insurance was 219% in 1993… If the loss ratio is similar to 1993’s, it would mean an $18 billion payout [at 2008 industry premiums of $8 billion].” - Bloomberg – June 16, 2008 The gross loss ratio in 1993 was 219%, but with the current SRA, the net loss ratio would have been closer to 120%. At $8 billion of industry premium, this equates to a net loss of only $1.6 billion to the industry |