Investor Presentation Quarter Ended June 30, 2011 Exhibit 99.1 |
2 This presentation may include forward-looking statements that reflect Alterra’s current views with respect to future events and financial performance. Statements that include the words “expect,” “intend,” “plan,” “believe,” “project,” “anticipate,” “will,” “may” and similar statements of a future or forward-looking nature identify forward-looking statements. All forward- looking statements address matters that involve risks and uncertainties. Accordingly, there are important factors that could cause actual results to differ materially from those indicated in such statements and you should not place undue reliance on any such statements. These factors include, but are not limited to, the following: (1) the adequacy of loss and benefit reserves and the need to adjust such reserves as claims develop over time; (2) the failure of any of the loss limitation methods employed; (3) the effect of cyclical trends, including with respect to demand and pricing in the insurance and reinsurance markets; (4) changes in general economic conditions, including changes in capital and credit markets; (5) any lowering or loss of financial ratings; (6) the occurrence of natural or man-made catastrophic events with a frequency or severity exceeding expectations; (7) actions by competitors, including consolidation; (8) the effects of emerging claims and coverage issues; (9) the loss of business provided to Alterra by its major brokers; (10) the effect on Alterra’s investment portfolio of changing financial market conditions, including inflation, interest rates, liquidity and other factors; (11) tax and regulatory changes and conditions; (12) retention of key personnel; and (13) the integration of new business ventures Alterra may enter into; and (14) management’s response to any of the aforementioned factors. The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included herein and elsewhere, including the Risk Factors included in Alterra’s most recent reports on Form 10-K and Form 10-Q and other documents on file with the Securities and Exchange Commission. Any forward-looking statements made in this presentation are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by Alterra will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, Alterra or its business or operations. Alterra undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise. Cautionary Note Regarding Forward-Looking Statements |
3 Alterra’s Franchise is Well Positioned For Success Global underwriter of specialty insurance and reinsurance Multiple operating platforms - Bermuda, Ireland, United States, Lloyd's, Latin America Strong franchise positions across multiple specialty classes of business Opportunistic and disciplined underwriting strategy Strong culture of risk management Analytical and quantitative underwriting orientation 5 year average combined ratio (including cats) of 87.7% Liquid balance sheet with conservative reserving track record Shareholders’ equity ~ $2.8 billion at 6/30/11 Low operating and financial leverage Proven track record of active capital management H1 repurchases of $142.2 million Returned $559 million or ~18% of pro forma 12/31/09 shareholders' equity (1) in 2010 through dividends and share repurchases Raised quarterly dividend by 17% in August 2011 to $0.14 per share Rated “A” (Excellent) by AM Best (2) ____________________ (1) Shareholders' equity of Max Capital and Harbor Point on a combined pro forma basis. (2) AM Best ratings reflect the agency’s opinion of our financial strength, operating performance and ability to meet our obligations. The ratings are not evaluations directed toward the protection of investors in securities of Alterra. H1 2011 GPW |
4 2010 2011 2010 2011 Second Quarter 2011 Results Second quarter 2011 net operating diluted EPS of $0.37 per share Decrease from 2010 due to high catastrophe losses and increased outstanding shares from Harbor Point merger P&C gross premiums written grew 41.4% to $563.0 million (18.3% on a pro forma basis) Driven by the inclusion of Harbor Point, new reinsurance business opportunities, new business in Latin America, and expansion of business at Lloyd’s and U.S. Specialty Net investment income up 12.0% to $59.7 million Combined ratio of 93.7% Catastrophe losses of $49.6 million Diluted book value per share of $25.98 at 6/30/11 P&C GPW (41.4% increase) Operating Diluted EPS Strong Growth in Gross Premiums Written… …Operating EPS Impacted By Catastrophe Losses Operating ROE 10.1% 5.7% Combined ratio 83.3% 93.7% $0.64 2010 2011 $0.37 |
5 Market on the Cusp of Change . . . First half global industry cat losses estimated ~ $70 billion Market is stressed by historic low returns on invested assets Cash flow levels are deteriorating Industry reserve redundancies are diminishing Share repurchase activity slowed due to high cat losses Property cat underwriting markets improving Casualty lines showing flat to modest improvement Pricing poised to further positively move with the next catalyst Alterra is positioned to be a beneficiary of improving market conditions globally __________________ As of June 30, 2011 |
6 Pricing Mixed But Gradually Improving Globally __________________ As of June 30, 2011 Results on Alterra’s renewal book • Excess liability rates up 1-3% • Professional lines D&O down near 20%, E&O up 8-10%. EPL down 6-8% • Property rates are flat to up 10% in the US and flat to up 15% on International business • Aviation rate declines range from 5-10% with aerospace on the high end • Auto rates are up 3-5% • General casualty rates are flat to down 5% but showing signs of hardening • Professional liability rates are down 5-10% • Medical malpractice declines are 4-6% • US property rate increases of 11-13% • International rates up 50% for Japan Earthquake, 45% in Australia, and over 200% in New Zealand • Property treaty rates up 4-6% • Casualty treaty rates up 3-5% • Financial institution rates are down 3-5% • A&H rates are down 1-2% • Latin America remains competitive with rates flat • Brokerage property and casualty rates are flat • Professional liability rates are up 3-5% • Marine rates are up 2-4% on average and 5-10% on accounts with cat exposure Insurance Reinsurance US Specialty Lloyd’s |
7 2004 Insurance Property 2003 Insurance Excess Liability Professional Liability 2005 Reinsurance Property / Property Cat Harbor Point formed 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 2010 Alterra formed by the merger of Max Capital and Harbor Point 2011 Lloyd’s Property Direct & Facultative U.S. Specialty Excess Casualty |
8 Reinsurance Insurance Lloyd’s U.S. Specialty Insurance Major Classes – Agriculture – Auto – Aviation – Credit, surety and political risk – General casualty – Life and annuity – Marine and energy – Medical malpractice – Professional liability – Property – Whole account – Workers’ comp – Aviation – Excess liability – Professional liability – Property – Accident & health Insurance – Aviation – Financial institutions – International casualty treaty – Marine and cargo – Personal accident treaty – Professional liability – Property treaty – Property direct and facultative – Surety – Excess liability – General liability – Marine – Professional liability – Property Operating Regions – Australia – Canada – European Union – Japan – Latin America – New Zealand – United States – European Union – United States – Denmark – Japan – Latin America – United Kingdom – United States Offices – Bermuda – Bogotá – Buenos Aires – Dublin – London – New Jersey – Bermuda – Dublin – Hamburg – New York – Sebastopol, CA – Zurich – Copenhagen – Leeds – London – Rio de Janeiro – Tokyo – Atlanta – Chicago – Dallas – New York – Philadelphia – Richmond – San Francisco Local Knowledge — Global Reach |
9 ____________________ Note: Pro forma gross premium written (“GPW”) represents the combined GPW of Max Capital and Harbor Point net of intercompany eliminations of GPW. Insurance (17.9% of H1 2011 P&C GPW) Reinsurance (52.4% of H1 2011 P&C GPW) Professional Liability Property Excess Liability Aviation General Casualty Property Aviation Workers Comp. Professional Liability Other Med. Mal. Marine & Energy Agriculture H1 2011 GPW: $212.5 million = pro forma Auto $1,060.4 $623.8 Alterra Has a Strong Market Position in Specialty Classes … Credit/ Surety Whole Account H1 2011 GPW: $623.8 million 2010 GPW: $370.1 million 2010 Pro forma GPW: $892.4 million $892.4 |
10 U.S. Specialty (14.3% of H1 2011 P&C GPW) Alterra at Lloyd’s (15.5% of H1 2011 P&C GPW) …With an Attractive Position in the U.S. Market and Lloyd’s Professional Liability Property Marine General Liability Property Aviation Fin. Institutions Prof. Liability Accident & Health 2010 GPW: $324.0 million 2010 GPW: $202.6 million H1 2011 GPW: $169.8 million H1 2011 GPW: $184.3 million Int’l Casualty |
11 Long-Tail Short-Tail North America Europe Other Credit/ Surety and Other Short-Tail Agriculture Marine & Energy Property Aviation Auto Professional Liability Medical Malpractice General Casualty Workers’ Comp Whole Account Reinsurance (2) Insurance Mixed 2010 GPW = $1,410.7 million ____________________ (1) Pro forma as if Harbor Point merger occurred on January 1, 2010. (2) Includes Reinsurance segment, Life & Annuity reinsurance and reinsurance written through Lloyd’s platform . Diversified and Balanced Business Mix Global Platform Line of Business 2010 pro forma GPW = $1,794.1 million (1) Accident & Health Life & Annuity H1 2011 GPW = $1,190.4 million 10% 19% 71% 36% 64% |
12 85% 104% 85% 76% 84% 75% 77% 96% 109% 161% 103% 94% 101% 96% 96% 124% 0% 25% 50% 75% 100% 125% 150% 2005 2006 2007 2008 2009 2010 H1'11 Average Source: Company filings. Diversified reinsurers include RE, AXS, ACGL, TRH, PRE, AWH, ENH, AHL, PTP, AGII, ALTE and ORH for historical years . Property focused reinsurers include RNR, VR, MRH, FSR and IPCR for historical years. Diversified Reinsurers Property Focused Reinsurers Median 116% 84% 82% 95% 84% 91% 124% 96% Alterra 106% 86% 88% 92% 88% 86% 104% 93% Diversified Platforms Generate More Consistent Margins Alterra has performed well within its diversified peer group with less volatility than property focused reinsurers Median 201% 55% 61% 89% 66% 84% 143% 100% Alterra has had one of the lowest combined ratios of its peer group 300% 69% 113% 45% 45% 56% 50% 33% 140% 0% 25% 50% 75% 100% 125% 150% 252% 60% 73% 92% 75% 118% 174% 102% 2005 2006 2007 2008 2009 2010 H1'11 Average 300% |
13 Our strategy is to diversify our book of business so that property cat is one of many parts of our business Results demonstrate that we adequately manage our risk exposure Our reserving process has been tested by large, recent loss events including: 2011 Australian floods, New Zealand earthquake, Japanese earthquake and tsunami, US spring storms 2010 Chilean earthquake, New Zealand earthquake 2008 Hurricanes Ike/Gustav Superior Risk Management Skills Alterra’s losses as a % of equity are consistently below our peer group average and there have not been meaningful adjustments to loss estimates |
14 Peer PML’s as a Percent of Common Equity Note: RNR, MRH and PRE do not disclose their PMLs for either 1-in-100 year events or 1-in-250 year events. (1) 1-in-100 PML and 1-in-250 for U.S. hurricane is $835 mm and $1,103 mm, respectively. Maximum zonal aggregate is $1.9 billion for U.S. hurricane and California earthquake. (2) Self-imposed limit of 25% of total capital. (3) 1-in-100 PML for U.S. hurricane is $1,085 mm based on an industry loss modeled at $121 billion. 1-in-250 for U.S. hurricane is $1,459 mm based on an industry loss modeled at $195 billion. (4) Tri-county Florida is the largest zonal exposure. Northeast wind was $733 mm. Self-imposed limit of 25% of common equity. (5) 1-in-100 PML for U.S. wind is $309 mm. 1-in-250 for U.S. quake is $287 mm, and 1-in-250 for U.S. wind of $390 mm. Historically, 1-in-100 was approximately 12% of total capital. C&S ($B): $3.5 $2.7 1.1 $3.1 $5.1 $1.9 $2.9 $4.2 $4.3 $3.1 $6.3 0% 5% 10% 15% 20% 25% 30% 35% VR (1) ENH (2) FSR AHL AXS (3) PTP ALTE ACGL (4) TRH AWH (5) RE PML’s as a Percentage of December 31, 2010 Capital and Surplus 1 in 100 1 in 250 |
15 2011 – First Half Catastrophe Losses Alterra’s H1 Losses are Below the Peer Group Averages __________________ Source: Company reports and SNL Financial as reported to June 30, 2011 |
16 2010 – Chilean Earthquake / Windstorm Xynthia/ September New Zealand Earthquake Alterra’s 2010 Losses Are Below Peer Group Averages Source: Company filings and press releases; losses are generally disclosed net of tax and net of reinstatement premiums. (1) Q2 net losses reflect Q1 estimates plus reported development, if any. (2) Q2 net losses reflect only losses from the Chilean earthquake. Initial losses include the Chilean earthquake and Windstorm Xynthia. (3) Initial loss estimate reflects 50% to 90% of Reuters consensus net operating earnings prior to the earthquake, based on disclosure that net income would remain positive for the quarter. (4) Initial estimates based on Chile and Xynthia, ultimate losses include the Chilean, Haitian, and Baja earthquakes, Xynthia and the Australian hailstorms. Based on international catastrophe losses being two-thirds of total catastrophe losses as disclosed in the earnings conference call. (5) Initial estimate is as of the first quarter conference call. Both initial and revised estimates reflect only the Chilean earthquake. (6) Pro forma; includes losses from Harbor Point and Max Capital prior to the merger. Expressed as a percentage of combined 12/31/09 equity prior to the special dividend. |
17 2008 – Hurricanes Ike / Gustav On a Pro-forma Basis Alterra’s 2008 Losses Are Below Peer Group Averages ____________________ Source: Company filings, as of 12/31/08. Losses are generally disclosed net of reinstatement premiums. (1) Equity includes preferred, which subsequently converted to common. (2) Results reflect Ike only. (3) Equity includes preferred, which subsequently converted to common. (4) TRH does not disclose specific losses but did lose "$169.7 million principally relating to Hurricane Ike." |
18 Florida wind 1 in 100 year event - $289 million net loss California earthquake 1 in 250 year event - $440 million net loss Europe wind 1 in 100 year event - $153 million net loss PML’s In-force as of July 1, 2011 ____________________ Note: Based on RMS 10.0 |
19 June 30, 2011 PML target of 20% of beginning shareholders’ equity for a 1:250 year event Absorbed RMS 11.0 within our basic target Lower end of stated ranges versus our peer group Track record of opportunistically expanding at inflection points in the cycle Flexibility to adjust cat aggregates as pricing improves Increasing our risk appetite by 5% would equate to approximately $150 million of PML The 20% PML target is an internal target that can be adjusted based on market opportunity Multiple tools to optimize performance in a harder market include: Ability to expand underwriting capacity through New Point IV Retain more and cede less business to reinsurers Low financial and operating leverage provides flexibility Positioned To Capitalize on Higher Reinsurance Rates Alterra Expects To Benefit As Harder Market Conditions Emerge |
20 Reserves for Loss and Loss Expenses ____________________ Note: As of 6/30/2011 and 12/31/2010; includes the results of Harbor Point from May 12, 2010, the closing date of the merger. ($ in millions) 30% |
21 Favorable Reserve Development $5.9 $45.1 $90.8 $77.2 $105.5 Development as a % of Net Reserves 0.3% 2.5% 4.1% 3.4% 3.4% Reserve Development Net Loss Reserves ($ in millions) $1,840 $1,796 $2,128 $2,213 $2,985 0 500 1,000 1,500 2,000 2,500 3,000 3,500 2006 2007 2008 2009 2010 Note: As of year-end 2010; reserve development and net reserves prior to May 12, 2010 are for Max Capital only. Reserve development excludes changes in reserves resulting from changes in premium estimates on prior years’ contracts. |
22 High Quality, Liquid Investment Portfolio As of June 30, 2011 Alterra maintains a high quality, liquid portfolio 95.6% of portfolio in fixed income/cash, which consists of highly rated securities Assets are generally matched to liabilities Cycle management extends to investments – H1 posture was defensive Cash balance $987.1 million or 12.4% of portfolio Average fixed income duration of approximately 4.1 years, including cash 62.9% of the cash and fixed maturities portfolio is held in cash, government / agency-backed securities and “AAA” securities 69.0% of fixed income portfolio rated “AA” or better Hedge fund investments are marked-to-market Minimal exposure to selected asset classes CMBS of $383.9 million (4.8% of portfolio) – average rating of AA+/Aa1 ABS of $204.6 million (2.6% of portfolio) RMBS of $1,159.9 million (14.6% of portfolio) – 96.7% agency- backed No CDO’s, CLO’s, SIV’s or other highly structured securities Less than $7.5 million of OTTI losses over the last ten quarters Carrying Value $8.0 billion June 30, 2011 |
23 Foreign Sovereign Exposure As of June 30, 2011 Foreign sovereign debt represents $784.7 million or 9.8% of the $8.0 billion investment portfolio By country: $277.5 million, or 3.5% of total portfolio in France $243.1 million, or 3.0% of total portfolio in Germany $140.8 million, or 1.8% of total portfolio in the Netherlands $616.4 million or 78.6% of foreign sovereigns are in our held to maturity portfolio Highly rated portfolio 91.5% of foreign sovereign securities are rated AAA 3.1% are rated AA+ 0.5% are rated AA 3.1% are rated BBB- Fair Value $784.7 million Geographic and Ratings Split of Foreign Sovereign Debt |
24 ____________________ Note: Primary price / diluted book value multiple as of 8/29/11. Well Positioned to Build Shareholder Value Franchise positions in attractive specialty markets Established operating platforms provide global access to business Diversified business portfolio across casualty and property lines Opportunistic approach – nimble and responsive to market trends High-quality, liquid investment portfolio Invested asset leverage intended to drive more consistent returns Balance sheet strength with low leverage / financial flexibility Attractive entry point – price / diluted book value of 0.78x |
25 Appendices |
26 June 30, December 31, 2011 2010 Cash & Fixed Maturities 7,603 $ 7,483 $ Other Investments 350 378 Premium Receivables 870 589 Losses Recoverable 1,059 956 Other Assets 615 511 Total Assets 10,497 $ 9,917 $ Property & Casualty Losses 4,230 $ 3,906 $ Life & Annuity Benefits 1,318 1,276 Deposit Liabilities 147 148 Funds Withheld 123 121 Unearned Premium 1,203 905 Senior Notes 440 440 Other Liabilities 243 203 Total Liabilites 7,704 $ 6,999 $ Shareholders' Equity 2,793 2,918 10,497 $ 9,917 $ Strong Balance Sheet ($ in millions) (1) Results for the year ended December 31, 2010 include results from Harbor Point following the close of the merger on May 12, 2010. |
27 YTD Results Comparison ($ in millions) Six months ended (1) Pro forma six months ended (2) June 30, June 30, June 30, 2011 2010 2010 Gross Premiums Written 1,192 $ 770 $ 1,153 $ Net Premiums Earned 729 488 706 Net Investment Income 117 102 126 Net Realized and Unrealized (Losses) Gains on Investments (25) (8) - Other Than Temporary Impairment Charges (1) (1) (1) Other Income 2 - 1 Total Revenues 822 581 832 Total Losses, Expenses & Taxes 836 441 702 Net (Loss) Income (14) $ 140 $ 130 $ Net Operating Income 15 $ 99 $ Property & Casualty Underwriting Loss Ratio 70.9% 58.6% Expense Ratio 32.6% 27.6% Combined Ratio 103.5% 86.2% (1) Results for the six months ended June 30, 2010 do not include results from Harbor Point prior to the merger on May 12, 2010. (2) Pro forma information is provided for informational purposes only to present a summary of the combined results of operations assuming the merger with Harbor Point had occurred on January 1, 2010. The pro forma information assumes the elimination of intercompany transactions and the amortization of certain acquisition accounting fair value adjustments. The pro forma information does not necessarily represent results that would have occurred if the merger had taken place on January 1, 2010, nor is it necessarily indicative of the future results. |
28 Six months ended June 30, 2011 ($ in millions) Differences in table due to rounding. (1) Property and Casualty only. Diversified Operating Platform Life & Property & Casualty Annuity Corporate Consolidated Alterra at Insurance Reinsurance U.S. Specialty Lloyd's Total Reinsurance Gross premiums written $212.5 $623.8 $169.8 $184.3 $1,190.4 $1.4 - $ $1,191.8 Reinsurance premiums ceded (99.2) (65.6) (61.0) (48.1) (273.9) (0.1) - (274.0) Net premiums written $113.3 $558.2 $108.9 $136.2 $916.5 $1.2 - $ $917.8 Earned premiums 196.2 459.1 147.0 128.5 930.9 1.4 - 932.3 Earned premiums ceded (89.1) (32.5) (46.6) (35.1) (203.3) (0.1) - 203.4 Net premiums earned $107.2 $426.6 $100.4 $93.4 $727.6 $1.2 - $ $728.8 Net losses and loss expenses ($63.7) ($312.5) ($64.1) ($75.3) ($515.5) - $ - $ ($515.5) Claims and policy benefits - - - - - (30.3) - (30.3) Acquisition costs 0.2 (93.5) (17.7) (24.0) (135.0) (0.3) - (135.3) General and administrative expenses (18.7) (46.2) (18.7) (19.3) (102.8) (0.4) - (103.3) Other income 1.0 0.5 - 0.4 1.9 - - 1.9 Underwriting income (loss) $26.0 ($25.0) ($0.1) ($24.8) ($23.9) n/a $0.0 n/a Net investment income $24.9 $92.5 $117.4 Net realized and unrealized gains (losses) on investments 1.5 (26.1) (24.6) Net impairment losses recognized in earnings (1.4) (1.4) Corporate other income 0.1 0.1 Interest expense (19.1) (19.1) Net foreign exchange gains (2.2) (2.2) Corporate general and administrative expenses (37.6) (37.6) Income (loss) before taxes ($3.4) $6.2 ($21.1) Loss ratio 59.4% 73.2% 63.8% 80.6% 70.9% Acquisition cost ratio -0.2% 21.9% 17.6% 25.7% 18.6% General and administrative expense ratio 17.4% 10.8% 18.6% 20.6% 14.1% Combined ratio (1) 76.7% 106.0% 100.1% 126.9% 103.5% |