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 LLOYD’S A World Class Specialty Insurer and Reinsurer Investor Presentation Third Quarter 2009 Exhibit 99.1 |
2 INFORMATION CONCERNING FORWARD LOOKING STATEMENTS CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION 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 Global underwriter of specialty insurance and reinsurance Multiple operating platforms - Bermuda, Dublin, United States, and Lloyd’s Diversified business profile across specialty classes of business Highly experienced management with proven track record Opportunistic and disciplined underwriting strategy Analytical and quantitative underwriting orientation 5 year average combined ratio, with cats, of 93% Generates more stable underwriting results and ROE Strong, liquid balance sheet with conservative reserving track record Shareholders equity - $1.55 billion at 9/30/09 Prudent capital management - $315 million in dividends/repurchases over last 5 years Significant expansion of underwriting platforms with minimal goodwill Gross premiums written (YTD 2009) of ~ $1.1 billion and 9/30/09 equity of $1.55 billion High quality investment portfolio repositioned to reflect traditional underwriting base Hedge funds are now a much smaller part of Max’s asset base at 7.2% and are to be reduced to 5% to 7% by year end 2009 Max Capital – Core Operations Short-Tail Long-Tail 62% 38% Insurance Reinsurance 53% 47% |
4 $1,054.9 $787.9 Q3'08 YTD Q3'09 YTD Strong YTD Results Reflects continued build-out of our global platform Max Specialty - $219 million GPW Reflects first year of Max at Lloyd’s - $110 million GPW Combined ratio reflects higher casualty mix Market conditions are improving / stabilizing Rate increases on short-tail lines Casualty rates have stabilized Strong YTD results despite high cash balances Once invested ROE will increase by 1% to 2% ROE points Return on invested portfolio is ~ 4.82% Hedge funds reduced to 7.2% of invested assets as of 9/30/09 Down from 14.1% at 12/31/08 Diluted book value per share increased 12.8% YTD 2009 to $26.54 Profitable Growth in Gross Premiums Written… …With Strong Operating EPS P&C GPW (34% increase) Operating EPS ROE (annualized) (5.4%) 14.1% Combined ratio 89.1% 90.5% ____________________ (1) Excludes $0.54 per share in merger and acquisition expenses. ($1.03) $2.58 Q3'08 YTD Q3'09 YTD (1) |
5 Opportunistic Expansion Across our Business Opportunistic approach to growing our business Underserved market niches which allow for technical underwriting orientation Disciplined approach in building teams Identify sound underwriters with multiple years of experience Create sophisticated pricing models and utilize strong risk management platform Size business based on market conditions Selected recent/future expansion examples International casualty reinsurance team at Max at Lloyd’s Personal accident and financial institution team at Max at Lloyd’s Professional liability team at Max Specialty U.S. Insurance platform has full ability to write admitted and E&S business The addition of California gives Max a 50 state franchise for admitted Marine products on both inland and ocean Recently approved in Puerto Rico, Max Specialty can now write non-admitted E&S business throughout the U.S. and Puerto Rico |
6 2004 Insurance Property 2003 Insurance Excess Liability Professional Liability 2005 Reinsurance Property / Property Cat 2006 Insurance Aviation 2008 Lloyd’s Reinsurance Accident / Health Property Lloyd’s Insurance Financial Institutions Prof. Indemnity 2007 U.S. E&S Insurance Property Inland Marine U.S. Casualty Reinsurance Multi Peril Crop Experienced & highly quantitative underwriting teams Lead underwriters average over 20 years in the business High percentage of employees hold professional designations 2009 Lloyd’s Reinsurance Casualty (non U.S.) Accident / Health U.S. Specialty Professional Liability 2002 Traditional Re Workers’ Comp Medical Malpractice GL / PL Aviation Identifying & Recruiting “Franchise Players” Has Been Instrumental In Our Success |
7 Bermuda / Dublin Reinsurance Bermuda / Dublin Insurance Lloyd’s U.S Specialty Insurance Major Classes Agriculture Aviation Excess liability Medical malpractice Professional liability Property Marine and energy Whole account Workers’ comp Life and annuity Aviation Excess liability Professional liability Property Personal accident Financial institutions Professional liability Property International casualty treaty reinsurance General liability Marine Property Miscellaneous professional liability Operating Regions United States Latin America Canada European Union Japan Australia New Zealand United States European Union United Kingdom Japan Denmark United States Offices Bermuda Dublin Bermuda Dublin Hamburg London Leeds Tokyo Copenhagen New York Philadelphia Richmond Atlanta Dallas San Francisco Global Reach Through Established Platforms |
8 140% 33% 50% 56% 49% 66% 252% 60% 73% 92% 79% 110% 0% 25% 50% 75% 100% 125% 150% 300% 2005 2006 2007 2008 1H'09 Average 82% 79% 84% 75% 77% 96% 104% 97% 101% 96% 96% 124% 0% 25% 50% 75% 100% 125% 150% 300% Average 2005 2006 2007 2008 1H'09 Median 201% 55% 61% 89% 68% 95% Median 115% 85% 84% 95% 88% 93% Max 106% 86% 88% 92% 90% 93% ____________________ Source: Company filings. Diversified reinsurers include RE, AXS, ACGL, TRH, PRE, ORH, AWH, ENH, AHL, PTP, AGII and MXGL. Property focused reinsurers include RNR, IPC, VR, MRH and FSR. Diversified Reinsurers Property Focused Reinsurers Max has performed well within its diversified peer group with less volatility than property focused reinsurers Diversified Platforms Generate More Consistent Margins |
9 ____________________ Source: Company filings, as of 12/31/08. Losses are generally disclosed net of reinstatement premiums. (1) Results reflect Ike only. (2) Equity includes preferred, which subsequently converted to common. (3) TRH does not disclose specific losses but did lose “$169.7 million principally relating to Hurricane Ike” or 5.0% of 6/30/08 common equity. Max had the lowest losses from Ike/Gustav as a % of equity Ike/Gustav Ultimate Net Losses as a % of 6/30/08 Common Equity ($ in millions) (% of capital) 1:100 yr 1:250 yr Target 8%-12% 15% - 20% 6/30/09E 11% 20% PMLs 3.4% 4.6% 4.8% 5.0% 6.0% 6.3% 6.7% 7.0% 7.8% 8.1% 8.1% 8.4% 8.9% 10.1% 11.0% 12.4% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% Initial Estimate Revised Estimate VR FSR RNR MRH PTP ACGL AXS PRE AHL IPCR ENH ORH TRH AWH RE MXGL (1) (2) (2) Losses $256 $140 $276 $140 $165 $287 $384 $305 $171 $135 $148 $155 $113 $257 $50 (3) $170 Max is less exposed to swings in the cat market than peers |
10 High quality, defensively postured portfolio Low OTTI during volatile periods in 2008-09 73% of fixed income portfolio rated Aa or better; diversification by sector and issuer Less than 7% rated Baa or below 70% of the cash and fixed maturities portfolio is held in cash, government / agency-backed securities, or AAA securities No CDO’s, CLO’s, SIV’s or other highly structured securities Hedge funds reduced from 21% at 12/31/07 with a 5-7% target Larger than normal cash position provides incremental investment income as cash is redeployed Cash balance of $1.0 billion or 19% of portfolio Hedge funds 7.2% Cash 19.5% Fixed income 73.3% Target Allocation Cash 5% Hedge funds 5%-7% Fixed income 87%-90% As of September 30, 2009 Max Investment Portfolio Highlights |
11 Favorable Earnings Growth Prospects Investments / Equity Max Full Year P&C GPW ____________________ (1) Source: Company filings. Includes ACGL, AGII, AHL, AWH, AXS, ENH, FSR, IPCR, MRH, ORH, PRE, PTP, RE, RNR, TRH and VR. 2.2x 3.8x Max Peers (1) 2008 2009E $1,012 $1,275 26% Growth Selected growth in premiums Opportunistic expansion in specialty areas Full year impact of Lloyd’s platform Generate combined ratios of 90% +/- Diversified portfolio will result in less volatility Max Specialty & Lloyds are growing into their expense base Expense ratio expected to normalize into 2010 Strong invested asset leverage Invested assets of $5.4 billion are 3.5x equity Reduced impact from hedge funds as our exposure is reduced Redeploy significant cash balances over time Approximately $1.1 billion in cash and equivalents at Sept 30, 2009 Prudent and cautious approach to capital management 1H 2009 |
12 ____________________ Source: Company filings. (1) Based on full year 2008 property and casualty gross premiums written. Certain allocations have been estimated. (2) Market data as of 8/31/09. (3) Max premium growth and combined ratios exclude Life segment. June 30, 2009 YTD 2008 2008 2008 GPW Distribution (1) GPW % Combined Combined Price / GPW Reinsurance Insurance Property Casualty Change Ratio Ratio Tang. BV (2) Diversified Transatlantic $4,423.2 100% 0% 30% 70% 0.2% 94.3% 98.5% 0.91x PartnerRe 4,028.2 100% 0% 61% 39% (9.2%) 85.3% 94.1% 1.10x Everest Re 3,678.1 79% 21% 59% 41% 10.6% 88.8% 95.6% 0.93x Arch Capital 3,669.1 41% 59% 37% 63% (0.2%) 87.0% 95.0% 1.07x AXIS 3,390.4 46% 54% 54% 46% 4.7% 83.4% 89.8% 0.97x OdysseyRe 2,294.5 65% 35% 45% 55% (6.8%) 96.5% 101.2% 0.99x Endurance 2,246.4 37% 63% 65% 35% (3.2%) 90.8% 93.5% 1.01x Aspen 2,001.7 50% 50% 58% 42% 4.1% 86.0% 95.6% 0.81x Argo Group 1,601.5 8% 92% 30% 70% 43.5% 96.0% 100.5% 0.90x Allied World 1,445.6 30% 70% 34% 66% 15.3% 79.3% 84.2% 0.95x Platinum Re 1,066.6 100% 0% 58% 42% (13.2%) 78.5% 91.9% 0.92x Mean 60% 40% 48% 52% 4.2% 87.8% 94.5% 0.96x Max Capital (3) $1,254.3 42% 58% 48% 52% 35.7% 90.3% 91.9% 0.88x Property Focused RenaissanceRe $1,736.0 66% 34% 87% 13% 8.9% 49.4% 79.0% 1.27x Validus 1,362.5 57% 43% 94% 6% 72.2% 73.5% 92.2% 0.97x FlagstoneRe 781.9 90% 10% 90% 10% 34.4% 74.3% 89.4% 0.89x Montpelier Re 614.5 99% 1% 91% 9% (2.1%) 67.6% 91.0% 0.87x IPC Holdings 403.4 100% 0% 100% 0% 19.5% 49.2% 56.4% 0.90x Mean 82% 18% 92% 8% 26.6% 62.8% 81.6% 0.98x Max’s Diversification and Growth are Attractive |
13 Max Has a Strong Market Position in Specialty Classes … Working layer excess business Focus on Fortune 1000 customers 2008 combined ratio = 88% 2008 GPW - $389 million 2008 GPW - $420 million Bermuda / Dublin Insurance Bermuda / Dublin Reinsurance Working layer excess / quota share business Cross class capability 2008 combined ratio = 87% Excess Liability Professional Liability Aviation Property 14% 14% 41% 32% Other General Liability Marine & Energy Whole Account Aviation Prof. Liabliity Workers Comp Med. Mal. Agriculture Property 25% 19% 18% 13% 9% 8% 3% 3% |
14 … With an Attractive Position in the U.S. Market and Lloyd’s Launched in 2007 Nationwide niche E&S underwriter Growing into expense base – target combined ratio of 85% to 90% Expected GPW of $275 million in 2009 2008 GPW - $194 million 2008 GPW - £65 million (1) U.S. Insurance Max at Lloyd’s Acquired in November 2008 Direct and reinsurance Expected GPW of $150 million in 2009 ____________________ (1) GPW reflects full year of business, which includes periods prior to the acquisition by Max. Marine General Casualty Property 20% 31% 49% Accident & Health Fin. Institutions Prof. Indemnity / Med. Mal. Employers' Public Liability Property Treaty 45% 1% 19% 18% 17% |
15 Overview of Life Reinsurance Spread management business, comparable to basic full Loss Portfolio Transfer Purchase blocks of existing policy or claim reserves (reserve buy outs) All originated transactions – winner takes all Known data files – no unreported exposures, minimal IBNR Access to historic experience data Only products with highly predictable and non-volatile cash flows Full asset transfer – the economic value of the liabilities It is NOT … Risk premium reinsurance (mainstream life reinsurance) Automatic reinsurance of new business (treaty business) Mega-sized transactions Variable or deferred annuities, XXX, term insurance, life settlements, COLI/BOLI U.S. Specialty 15% Max at Lloyd's (1) 1% Bermuda/Dublin Insurance 31% Life & Annuity Reinsurance 19% Bermuda/Dublin Reinsurance 34% ____________________ (1) Max at Lloyd’s acquired in November 2008 and includes partial year GPW. 2008 GPW |
16 Max Bermuda and Dublin (Insurance/Reinsurance) Rates favorable in short-tail property cat and energy Long-tail lines have stabilized and stopped declining Max at Lloyd’s Provides access to global specialty business, high credit ratings, worldwide licenses Experienced team underwriting a seasoned book of business Building out the platform recruiting new teams with recent additions International casualty reinsurance Marine and personal accident insurance Max Specialty Strong distribution relationships continue to generate a high flow of business Market dislocations provide the opportunity to add teams and new products Benefiting from improving property rates Profitability improving as the business matures into its expense base Life Reinsurance Only writes “closed” blocks of business with no variable annuity exposure Provides capital relief which will be in high demand as many life insurers are capital constrained Max is Strongly Positioned For Profitable Growth 2009E GPW Life Reinsurance Max Specialty Max at Lloyd's Bermuda / Dublin Insurance / Reinsurance 63% 11% 20% 6% |
17 Well established operating platforms provide full access to business Diversified portfolio of business across casualty and property lines Specialty orientation with a balance of insurance vs. reinsurance Opportunistic approach – nimble and responsive to market trends Defensive, high quality investment portfolio Invested asset leverage will drive more consistent returns Balance sheet strength with low leverage / financial flexibility Max Offers a Compelling Story We believe we can generate an average ROE of 13% to 16% across the cycle Attractive entry point – current price / book value of 0.79x ____________________ Note: Price / book multiple as of 11/3/09. |
18 APPENDIX |
19 ($ in millions) Strong Balance Sheet September 30, December 31, 2009 2008 Cash & Fixed Maturities $5,029 $4,603 Other Investments 390 754 Premium Receivables 546 555 Losses Recoverable 986 847 Other Assets 478 493 Total Assets $7,429 $7,252 Property & Casualty Losses $3,159 $2,938 Life & Annuity Benefits 1,416 1,367 Deposit Liabilities 153 219 Funds Withheld 142 164 Unearned Premium 676 574 Bank Loan - 375 Senior Notes 91 91 Other Liabilities 245 244 Total Liabilites $5,882 $5,972 Shareholders' Equity 1,547 1,280 $7,429 $7,252 |
20 ($ in millions) Nine-Month Results Comparison 2009 2008 Gross Premiums Written $1,097 $882 Net Premiums Earned 627 512 Net Investment Income 125 137 Net Gains on Other Investments 63 (145) Net Realized Losses on Fixed Maturities - (18) Other Income 3 1 Total Revenues 818 487 Total Losses, Expenses & Taxes 634 568 Net Income $184 ($81) Property & Casualty Underwriting Loss Ratio 65% 67% Expense Ratio 26% 22% Combined Ratio 91% 89% Nine months ended September 30, |
21 Nine months ended September 30, 2009 ($ in millions) Diversified Operating Platform Life & Property & Casualty Annuity Corporate Consolidated Bermuda / Dublin Max at Insurance Reinsurance U.S. Specialty Lloyd's Total Reinsurance Gross premiums written $302.7 $422.3 $219.3 $110.6 $1,054.9 $41.7 $0.0 $1,096.6 Reinsurance premiums ceded (146.1) (80.6) (118.6) (31.9) (377.2) (0.1) 0.0 (377.3) Net premiums written $156.6 $341.7 $100.7 $78.7 $677.7 $41.6 $0.0 $719.3 Earned premiums 307.7 365.0 185.6 93.8 952.1 41.7 0.0 993.8 Earned premiums ceded (157.7) (74.7) (111.7) (22.5) (366.6) (0.1) 0.0 (366.7) Net premiums earned $150.0 $290.3 $73.9 $71.3 $585.5 $41.6 $0.0 $627.1 Net investment income $16.9 $29.6 $4.5 $3.2 $54.2 $37.6 $33.2 $125.0 Net gains on other investments 3.5 8.5 0.0 0.0 12.0 29.1 21.6 62.7 Net realized gains (losses) on fixed maturiti 0.0 0.0 0.2 2.6 2.8 0.0 (1.0) 1.8 Net impairment losses recognized in earnin 0.0 0.0 0.0 0.0 0.0 0.0 (2.1) (2.1) Other income 1.2 0.0 0.3 0.5 2.0 0.0 1.1 3.1 Total revenues $171.6 $328.4 $78.9 $77.6 $656.5 $108.3 $52.8 $817.6 Net losses and loss expenses $106.0 $192.8 $46.5 $33.4 $378.7 $0.0 $0.0 $378.7 Claims and policy benefits 0.0 0.0 0.0 0.0 0.0 84.1 0.0 84.1 Acquisition costs (1.5) 53.5 5.9 14.8 72.7 1.0 0.0 73.7 Interest expense 0.0 2.4 0.0 0.0 2.4 2.8 9.5 14.7 Net foreign exchange losses 0.0 0.0 0.0 (5.1) (5.1) 0.0 (1.4) (6.5) Merger and acquisition expenses 0.0 0.0 0.0 0.0 0.0 0.0 (31.3) (31.3) General and administrative expenses 17.8 23.6 21.2 15.9 78.5 2.2 34.9 115.6 Total losses and expenses 122.3 272.3 73.6 59.0 527.2 90.1 11.7 629.0 Income before taxes $49.3 $56.1 $5.3 $18.6 $129.3 $18.2 $41.1 $188.6 Loss ratio 70.7% 66.4% 62.9% 46.9% 64.7% Acquisition cost ratio -1.0% 18.4% 8.0% 20.8% 12.4% General and administrative expense ratio 11.9% 8.2% 28.6% 22.2% 13.4% Combined ratio (1) 81.6% 93.0% 99.5% 89.9% 90.5% ____________________ (1) Property and Casualty only. |
22 ($2.59) $4.81 $3.52 $0.19 $2.70 ($4.00) ($2.00) $0.00 $2.00 $4.00 $6.00 2004 2005 2006 2007 2008 92% 88% 86% 106% 94% 0% 20% 40% 60% 80% 100% 120% 2004 2005 2006 2007 2008 (10.2%) 20.7% 17.3% 1.0% 15.8% (20.0%) (10.0%) 0.0% 10.0% 20.0% 30.0% 2004 2005 2006 2007 2008 Profitable Underwriting Trends Gross Premiums Written ($ in millions) P&C Combined Ratio Operating EPS Operating ROE $212 $275 $45 $302 $242 $0 $300 $600 $900 $1,200 $1,500 Life P&C 2004 2005 2006 2007 2008 $1,044 $1,246 $865 $1,078 $1,254 |
23 $1,280 $1,584 $1,390 $1,186 $903 $20.16 $19.70 $23.06 $22.77 $27.54 $0 $300 $600 $900 $1,200 $1,500 $1,800 $0.00 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 Shareholders' Equity Book Value per Share 2004 2005 2006 2007 2008 $5,357 $5,123 $4,536 $4,223 $3,515 3.9x 3.6x 3.3x 3.9x 3.2x $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 0.0x 1.0x 2.0x 3.0x 4.0x 5.0x Invested Assets Leverage 2004 2005 2006 2007 2008 $508 $252 $273 $447 $799 $0 $200 $400 $600 $800 $1,000 2004 2005 2006 2007 2008 $0.36 $0.32 $0.24 $0.18 $0.12 $0.00 $0.10 $0.20 $0.30 $0.40 2004 2005 2006 2007 2008 Investment Leverage Shareholders' Equity Book Value per Share A Growing, Global Insurance / Reinsurance Company Invested Assets ($ in millions) Shareholders Equity and BVPS ($ in millions) Operating Cash Flow ($ in millions) Dividends |
24 Reinsurance / Bermuda – Investment Portfolio Peer Review ____________________ Source: Company filings. (1) Includes cash and short-term investments. As of June 30, 2009 % of Total Cash & Investments Equity / Other Cash & Cash Fixed Income Equity / Other Total Cash & Investment as a % of Equivalents (1) Securities Securities Investments Leverage Equity Everest Re 11.1% 83.4% 5.5% $14,207.3 2.6x 14.0% Arch Capital 9.1% 81.4% 9.5% 10,983.6 2.7x 25.9% AXIS 14.0% 80.3% 5.8% 11,055.3 2.3x 13.0% PartnerRe 5.6% 89.1% 5.2% 12,070.2 2.5x 13.3% Transatlantic 5.9% 87.4% 6.7% 11,298.5 3.2x 21.4% RenaissanceRe 20.1% 66.2% 13.6% 6,385.9 1.9x 25.6% OdysseyRe 17.5% 55.0% 27.5% 8,090.1 2.6x 70.8% Aspen 17.2% 82.4% 0.4% 6,002.6 2.0x 0.8% Endurance 23.4% 70.8% 5.8% 5,733.8 2.3x 13.5% Validus 20.2% 79.8% 0.0% 3,530.6 1.6x 0.0% Allied World 7.4% 90.7% 1.8% 7,187.6 2.6x 4.8% Platinum Re 8.0% 92.0% 0.1% 4,399.3 2.3x 0.2% IPC Holdings 11.8% 73.9% 14.3% 2,308.5 1.1x 16.4% Montpelier Re 10.0% 80.3% 9.7% 2,597.6 1.6x 15.8% FlagstoneRe 37.7% 59.1% 3.1% 1,822.0 1.4x 4.4% Argo Group 16.8% 75.3% 7.9% 4,103.8 2.8x 22.1% Mean 14.7% 78.0% 7.3% 2.2x 16.4% Max Capital 19.7% 71.8% 8.5% $5,124.0 3.8x 32.0% |