![]() 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 L L O Y D' S L A T I N A M E R I C A A World Class Specialty Insurer and Reinsurer AIFA 2010 Conference Presentation Jim Gray, EVP and CUO Professional Lines Exhibit 99.1 |
![]() 1 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. |
![]() 2 Max Capital – Core Operations Global underwriter of specialty insurance and reinsurance Multiple operating platforms - Bermuda, Dublin, United States, Lloyd's, Latin America 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 92% Generates more stable underwriting results and ROE Strong, liquid balance sheet with conservative reserving track record Shareholders equity - $1.56 billion at 12/31/09 Prudent capital management – $350 million in dividends/repurchases over last 5 years Significant expansion of underwriting platforms with minimal goodwill Gross premiums written 2009 of $1.375 billion High quality investment portfolio repositioned to reflect traditional underwriting base Hedge funds are now a much smaller part of Max's invested asset base at 6% Insurance Reinsurance 43% 57% Short-Tail Long-Tail 51% 49% 2009 P&C GPW |
![]() 3 2004 Insurance Property 2003 Insurance Excess Liability Professional Liability 2005 Reinsurance Property / Property Cat 2006 Insurance Aviation 2008 Lloyd's Insurance Financial Institutions Prof. Indemnity Lloyd's Reinsurance Accident / Health Property 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 Casualty (non U.S.) A&H Insurance U.S. Specialty Professional Liability Latin America Reinsurance 2002 Traditional Re Workers' Comp Medical Malpractice GL / PL Aviation Identifying & Recruiting "Franchise Players" Has Been Instrumental In Our Success |
![]() 4 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 Latin America United States Offices Bermuda Dublin Bogota Bermuda Dublin Hamburg London Leeds Tokyo Copenhagen Rio de Janeiro New York Philadelphia Richmond Atlanta Dallas San Francisco Global Reach Through Established Platforms |
![]() 5 Max Has a Strong Market Position in Specialty Classes … Working layer excess business Focus on Fortune 1000 customers 2009 combined ratio = 75.6% 2009 GPW - $427.8 million 2009 GPW - $489.0 million Working layer excess / quota share business Cross class capability 2009 combined ratio = 92.1% Bermuda / Dublin Insurance Bermuda / Dublin Reinsurance Excess Liability Professional Liability Aviation Property 15% 16% 42% 27% Property Agriculture Med. Mal. Workers Comp Prof. Liabliity Aviation Whole Account Marine & Energy General Casualty Other 18% 17% 14% 16% 15% 7% 2% 4% 6% 1% |
![]() 6 … 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% 2009 combined ratio = 99.5% 2009 GPW - $285.5 million 2009 GPW - $129.0 million U.S. Specialty Max at Lloyd's Acquired in November 2008 Direct and reinsurance 2009 combined ratio = 86.3% Accident & Health Fin. Institutions Prof. Liability Aviation Property Treaty 47% 2% 15% 18% 18% Prof. Liability Property General Casualty Marine 21% 31% 48% <1% |
![]() 7 ($2.54) $3.62 2008 2009 $1,012.1 $1,331.2 2008 2009 Strong 2009 Results Reflects continued build-out of our global platform Max Specialty - $285.5 million GPW Reflects first year of Max at Lloyd's – $129.0 million GPW Combined ratio reflects higher casualty mix Market conditions vary by line Short-tail lines remain attractive Casualty rates are mixed Strong 2009 results despite high cash balances Once invested, ROE should increase by 1% to 2% ROE points Return on invested portfolio is ~ 6.7% Hedge funds reduced to 6.0% of invested assets as of 12/31/09 Down from 14.1% at 12/31/08 Diluted book value per share increased 21.8% in 2009 to $27.36 P&C GPW (32% increase) Operating Diluted EPS Operating ROE (10.0%) 14.7% Combined ratio 91.9% 88.1% (1) Excludes $0.55 per share in merger and acquisition expenses. Profitable Growth in Gross Premiums Written… …With Strong Operating EPS |
![]() 8 Professional Liability Underwriting - Highlights Started in 2003 with Bermuda and Dublin Offices Experienced underwriting staff since inception Jim Gray – CUO From XL, Zurich, Lexington with 23 years of professional liability experience, JD degree Drew Dinsmore – SVP From Aon Global Professional and Minet with 21 years of experience Joey O’Dea – SVP From XL Europe with 21 years of experience Jonathan Evans – SVP From ACE Bermuda, ACE Lloyds, and Lloyds MA Methuen Underwriting - 19 years experience Expanding into the US Max Managers Concentrating on middle market E&O opportunities (Lawyers, A&E) Max Specialty Concentrating on small account miscellaneous E&O (Lawyers, Insurance Agents, Real Estate Agents and Appraisers, miscellaneous classes) |
![]() 9 Professional Liability Product Highlights Directors and Officers Liability Insurance Target Class: US and International publicly traded companies Full coverage excess D&O (Side ABC), $15 million net and treaty capacity Side A excess D&O, $25 million net and treaty capacity Professional firms management liability (mostly Law Firms), $25 million net and treaty capacity Errors and Omissions Liability Insurance Accountants ($10 million net capacity) Lawyers ($15 million net and treaty capacity) Consultants ($25 million net and treaty capacity) Financial Institutions ($25 million net and treaty capacity Blended programs (usually D&O, E&O, Crime and Fiduciary) ($25 million net and treaty capacity) Employment Practices Liability Insurance Mostly US large corporations and professional firms Primary $25 million net and treaty capacity with proprietary form Minimum per claim self insured retention - $1 million each claim for corporate risks Excess $25 million net and treaty capacity |
![]() 10 Professional Liability Production Breakdown – 2009 E&O EPLI Miscellaneous D&O 18.09% 0.98% 22.32% 58.61% Gross Premiums Written by Deal Exposure ($ in millions) 1/1/2009–12/31/2009 Total Premiums: $179,904,000 |
![]() 11 Professional Liability Production Breakdown – D&O 2009 The largest segment for D&O is Side A excess, which is 50% of the total production Side A is considered to be less exposed to loss than standard excess D&O, because it applies only to D&O claims which are not identifiable Management Liability (MLI) is executive liability insurance for professional firms such as law firms MLI is the fastest growing segment of our D&O book, and is now 20% of the total 0 2 4 6 8 10 12 14 16 18 Side A Side ABC Management Liability (GPW, $ in millions) |
![]() 12 D&O Production – 2003-2009 In 2003, the original expectation was for an even production split between D&O and E&O. Beginning in 2004, competition in the D&O market caused a rapid drop in pricing, below our expectations for acceptable profitability. We responded by allowing our production to fall by over 60% between 2004 and 2007. As pricing opportunities reemerged, our participation in the market increased. Through disciplined underwriting, we missed most of losses through the soft market. (GPW, $ in millions) 0 5 10 15 20 25 30 35 40 45 50 D&O 2003 2004 2005 2006 2007 2008 2009 |
![]() 13 E&O Production Breakdown by Profession – in force 0 5 10 15 20 25 30 35 Accountants Actuaries A&E Consultants FI Insurance Lawyers Blended (GPW, $ in millions) |
![]() 14 Professional Liability Market Today Directors and Officers Liability Insurance Commercial accounts are softening with reestablished and new capacity available Commercial price erosion expected to be 10% - 20% in the market FI related accounts still in a hard market, pricing up 20% this year Limit appetite still increasing Errors and Omissions Liability Insurance Accountants and Actuaries still in a hard market – capacity constrained Lawyers capacity is stable, pricing flat FI E&O accounts in a hard market, pricing + 20% Employment Practices Liability Insurance Large account primary capacity is stable, expecting stable pricing Large account excess capacity is increasing, expecting pricing slides of 10% Profitability of excess EPL is still higher than primary due to lower number of severe class actions in the past three years |
![]() 15 ($ in millions) Total favorable (adverse) development $0.0 $20.9 $8.8 $22.6 $41.3 Calendar Year Accident Year 64.3% 78.1% 77.1% 62.8% 101.5% 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 120.0% 2005 2006 2007 2008 2009 Bermuda/Dublin Insurance Loss Ratios Note: Favorable (adverse) development excludes changes in reserves resulting from changes in premium estimates in prior years’ contracts. 84.3% 90.6% 81.5% 73.3% 101.5% 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 120.0% 2005 2006 2007 2008 2009 |
![]() 16 Well established operating platforms provide full access to business Diversified portfolio of business across casualty and property lines Specialty orientation with a balance of insurance vs. reinsurance Opportunistic approach – nimble and responsive to market trends Defensive, high quality investment portfolio Invested asset leverage will drive more consistent returns Balance sheet strength with low leverage / financial flexibility Max Offers a Compelling Story We believe we can generate an average ROE of 13% to 16% across the cycle Attractive entry point – current price / book value of 0.89x ____________________ Note: Price / book multiple as of 2/19/10. |
![]() Appendix |
![]() 18 ($ in millions) December 31, December 31, 2009 2008 Cash & Fixed Maturities $4,944 $4,603 Other Investments 315 754 Premium Receivables 567 555 Losses Recoverable 1,001 847 Other Assets 513 493 Total Assets $7,340 $7,252 Property & Casualty Losses $3,178 $2,938 Life & Annuity Benefits 1,373 1,367 Deposit Liabilities 153 219 Funds Withheld 140 164 Unearned Premium 628 574 Bank Loan - 375 Senior Notes 90 91 Other Liabilities 213 244 Total Liabilites $5,775 $5,972 Shareholders' Equity 1,565 1,280 $7,340 $7,252 Strong Balance Sheet |
![]() 19 ($ in millions) December 31, December 31, 2009 2008 Gross Premiums Written $1,375 $1,254 Net Premiums Earned 834 814 Net Investment Income 170 182 Net Realized and Unrealized Gains (Losses) on Investments 82 (235) Other Than Temporary Impairment Charges (3) (17) Realized Gain on Retirement of Senior Notes 0 �� 2 Other Income 3 1 Total Revenues 1,086 747 Total Losses, Expenses & Taxes 830 921 Net Income $256 ($174) Net Operating Income $209 ($144) Property & Casualty Underwriting Loss Ratio 62% 69% Expense Ratio 26% 23% Combined Ratio 88% 92% Yearly Results Comparison |
![]() 20 Year ended December 31, 2009 ($ in millions) (1) Property and Casualty only. 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 $427.8 $489.0 $285.5 $129.0 $1,331.2 $43.8 $0.0 $1,375.0 Reinsurance premiums ceded (212.1) (80.0) (155.1) (32.9) (480.1) (0.4) 0.0 (480.5) Net premiums written $215.7 $409.0 $130.4 $96.1 $851.2 $43.3 $0.0 $894.5 Earned premiums 417.1 476.4 256.7 125.0 1,275.2 43.8 0.0 1,318.9 Earned premiums ceded (211.1) (88.6) (154.6) (29.9) (484.2) (0.4) 0.0 (484.6) Net premiums earned $206.0 $387.9 $102.1 $95.1 $791.0 $43.3 $0.0 $834.4 Net investment income $22.9 $40.2 $6.0 $4.4 $73.5 $51.0 $45.3 $169.7 Net realized and unrealized gains (losses) on investments 4.4 10.5 0.2 2.6 17.8 37.3 26.6 81.8 Net impairment losses recognized in earnings 0.0 0.0 0.0 0.0 0.0 0.0 (3.1) (3.1) Net realized gain on retirement of senior notes 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 Other income 1.2 0.0 0.3 0.7 2.2 (0.1) 0.8 2.9 Total revenues $234.5 $438.6 $108.6 $102.7 $884.5 $131.6 $69.7 $1,085.8 Net losses and loss expenses $132.4 $254.5 $62.8 $44.0 $493.6 $0.0 $0.0 $493.6 Claims and policy benefits 0.0 0.0 0.0 0.0 0.0 101.1 0.0 101.1 Acquisition costs (1.2) 71.1 7.5 18.1 95.5 1.4 0.0 96.9 Interest expense 0.8 6.6 0.0 0.0 7.4 3.3 10.6 21.3 Net foreign exchange losses 0.0 0.0 0.0 (5.1) (5.1) 0.0 (0.7) (5.8) Merger and acquisition expenses 0.0 0.0 0.0 0.0 0.0 0.0 (31.6) (31.6) General and administrative expenses 24.6 31.8 31.2 20.0 107.6 2.8 43.6 154.0 Total losses and expenses 156.5 363.9 101.5 77.0 699.0 108.6 22.0 829.6 Income before taxes $78.0 $74.7 $7.1 $25.7 $185.5 $23.0 $47.8 $256.2 Loss ratio 64.3% 65.6% 61.5% 46.2% 62.4% Acquisition cost ratio -0.6% 18.3% 7.3% 19.1% 12.1% General and administrative expense ratio 11.9% 8.2% 30.7% 21.0% 13.6% Combined ratio (1) 75.6% 92.1% 99.5% 86.3% 88.1% |
![]() 21 14.7% (10.0%) 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 2009 88% 92% 88% 86% 106% 94% 0% 20% 40% 60% 80% 100% 120% 2004 2005 2006 2007 2008 2009 $3.62 ($2.54) $4.81 $3.52 $0.19 $2.70 ($4.00) ($2.00) $0.00 $2.00 $4.00 $6.00 2004 2005 2006 2007 2008 2009 Gross Premiums Written ($ in millions) P&C Combined Ratio Operating Diluted EPS (1)(2) Operating ROE (2) Profitable Underwriting Trends $44 $242 $302 $45 $275 $212 $0 $300 $600 $900 $1,200 $1,500 Life P&C $1,044 $1,246 $865 $1,078 $1,254 $1,375 2004 2005 2006 2007 2008 2009 (1) Excludes merger and acquisition related revenue and expenses. (2) 2008 underwriting results were strong with a 92% Combined Ratio. Negative Operating Diluted EPS and Operating ROE resulted from significant investment volatility in a year with a higher allocation to hedge funds. |
![]() 22 $1,565 $1,280 $1,584 $1,390 $1,186 $903 $28.01 $22.94 $27.54 $23.06 $20.16 $19.70 $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 2009 $0.38 $0.36 $0.32 $0.24 $0.18 $0.12 $0.00 $0.10 $0.20 $0.30 $0.40 2004 2005 2006 2007 2008 2009 Investment Leverage Shareholders' Equity Book Value per Share Invested Assets ($ in millions) Shareholders Equity and BVPS ($ in millions) Operating Cash Flow ($ in millions) Dividends A Growing, Global Insurance / Reinsurance Company $5,259 $3,515 $4,228 $4,536 $5,123 $5,357 3.4x 3.9x 3.6x 3.3x 3.2x 4.2x $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 2009 $193 $482 $228 $405 $442 $799 $0 $200 $400 $600 $800 $1,000 2004 2005 2006 2007 2008 2009 |