Investor Presentation Quarter Ended March 31, 2012 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; (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 and 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 Business mix shift towards shorter-tail lines 5 year average combined ratio (including cats) of 91.2% Liquid balance sheet with conservative reserving track record Shareholders’ equity ~ $2.8 billion at 3/31/12 Low operating and financial leverage S&P rating and AM Best ratings of “A” Proven track record of active capital management Q1 2012 repurchases of $48.8 million and dividends of $14.0 million, or 2.2% of 1/1/12 shareholders’ equity 2011 repurchases of $223.3 million and dividends of $54.5 million, or 9.5% of 1/1/11 shareholders’ equity Raised quarterly dividend by 17% in August 2011 to $0.14 per share 2011 GPW Short- Tail Long-Tail 56% 44% Insurance 43% Reinsurance 57% |
4 Alterra Capital Underwriting Management Framework Cross-platform underwriting management Board Underwriting Committee provides oversight of underwriting strategy, processes and controls Alterra Underwriting Council manages and executes underwriting portfolio strategy, processes and controls across all platforms • Metrics and portfolio management • Establish underwriting consistency and promulgate best practices • Comprised of all CUOs and selected underwriting thought leaders Practice Groups are established by the Underwriting Council to address more specific and ongoing line of business strategy/coordination issues Underwriting Services • Facilitate underwriting governance processes • Work with business units to create/maintain pricing models • Optimize capital allocation • Facilitate resolution of underwriting conflicts • Support Board Underwriting Committee |
5 First Quarter 2012 Results First quarter 2012 net operating diluted EPS of $0.66 per share P&C gross premiums written grew 5.3% to $660.9 million Driven by growth in all our segments except our reinsurance segment Net investment income of $58.7 million compared to $57.8 million in 2011 Combined ratio of 92.6% compared to 112.5% in 2011 Diluted book value per share of $27.67 at 3/31/12 up from $26.91 at 12/31/11 Q1 2012 impacted by $9.2 million of income from our investment in New Point IV. Generated from equity earnings and fee income. P&C GPW (5.3% increase) 112.5% 92.6% Combined Ratio Diluted Book Value per Share (3.0% increase) $26.91 $27.67 Dec 31, 2011 Mar 31, 2012 $627.4 $660.9 Mar 31, 2011 Mar 31, 2012 Growth in Book Value Expansion into new lines and regions |
6 2011 global industry cat losses were over $105 billion Market stressed by historic low returns on invested assets Cash flow levels deteriorating Industry reserve redundancies diminishing Property cat underwriting markets improving Casualty lines showing flat to modest improvement Pricing poised to positively move further with the next catalyst Market Transitioning . . . Alterra is positioned to be a beneficiary of improving market conditions |
7 Pricing Is Improving For The First Time Since 1999. . . But The Pace Remains Slow More Rate Is Needed To Meaningfully Increase Exposure ------------------------------------------------------------------------------------------ Source: CIAB Pricing Survey Large Accounts: Rates Remain Below 1999 Medium Accounts: Rates ~ 3% Above 1999 Small Accounts: Rates ~ 12% Above 1999 |
8 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 |
9 Local Knowledge Global Reach |
10 ____________________ Note: Pro forma gross premium written (“GPW”) represents the combined GPW of Max Capital and Harbor Point net of intercompany eliminations of GPW. Global Insurance (10.1% of Q1 2012 P&C GPW) Reinsurance (48.1% of Q1 2012 P&C GPW) Professional Liability Property Excess Liability Aviation General Casualty Property Aviation Workers Comp. Professional Liability Other Med. Mal. Marine & Energy Agriculture Q1 2012 GPW: $66.8 million = pro forma Alterra Has a Strong Market Position in Specialty Classes … Credit/ Surety Q1 2012 GPW: $318.4 million 2% 4% 4% 1% 19% 45% 38% 4% 10% 36% 24% 2% 6% 5% |
11 U.S. Insurance (15.8% of Q1 2012 P&C GPW) Alterra at Lloyd’s (22.1% of Q1 2012 P&C GPW) …With an Attractive Position in the U.S. Market and Lloyd’s Professional Liability Property Marine Excess/ General Liability Property Agriculture Aviation Financial Institutions Accident & Health Q1 2012 GPW: $104.3 million Q1 2012 GPW: $146.1 million Int’l Casualty Marine Professional Liability $194.3 $265.9 $324.0 $374.7 $104.3 $0.0 $100.0 $200.0 $300.0 $400.0 2008 2009 2010 2011 Q1 2012 $8.8 $129.0 $179.8 $253.1 $146.1 $0.0 $100.0 $200.0 $300.0 2008 2009 2010 2011 Q1 2012 12% 14% 2% 5% 33% 4% 28% 2% 33% 24% 11% 32% |
12 Latin America (3.8% of Q1 2012 P&C GPW) …and Latin America Property Surety Marine General Liability Q1 2012 GPW: $25.3 million 10% 7% 65% 18% $44.8 $91.8 $25.3 $0.0 $100.0 2010 2011 Q1 2012 |
13 North America Europe Other Reinsurance Insurance (1) 2011 GPW = $1,904.1 million ____________________ (1) Includes Reinsurance segment, Life & Annuity reinsurance and reinsurance written through Lloyd’s platform. Diversified and Balanced Business Mix Global Platform 2011 Line of Business 2011 Auto 5% Aviation 3% Marine & Energy 6% Agriculture 2% Accident & Health 2% Other Short -Tail 2% Property 35% Whole Account 2% General Casualty 17% Financial Institutions 2% Workers' Comp 2% Medical Malpractice 2% Professional Liability 20% 16% 10% 74% 57% 43% |
14 ____________________ Diversified Reinsurers Property Focused Reinsurers Diversified Platforms Generate More Consistent Margins Alterra has performed well within its diversified peer group with less volatility than property focused reinsurers Alterra has had one of the lowest combined ratios of its peer group Median 173% 57% 62% 90% 66% 84% 126% 94% Median 115% 85% 83% 96% 86% 94% 115% 96% Alterra 109% 94% 96% 99% 94% 91% 103% 98% 72% 99% 47% 23% 81% 60% 48% 144% 108% 154% 102% 75% 92% 73% 60% 201% 0% 25% 50% 75% 100% 125% 150% 175% 200% 225% 2005 2006 2007 2008 2009 2010 2011 Average 84% 96% 85% 76% 84% 75% 77% 97% 110% 145% 103% 97% 106% 99% 94% 124% 0% 25% 50% 75% 100% 125% 150% 175% 200% 225% 2005 2006 2007 2008 2009 2010 2011 Average Source: Company filings, SNL Financial. Diversified reinsurers include RE, AXS, ACGL, TRH, PRE, AWH, ENH, AHL, PTP, AGII and ALTE . Property focused reinsurers include RNR, VR, MRH and FSR. |
15 3 Year Return on Equity Alterra’s ROEs Have Been Less Volatile Than Most Peers ____________________ Source: JMP Research, SNL Financial. Three years ended December 31, 2011. Alterra ROE reflects Pro-Forma data for Max and Harbor Point prior to the merger in May 2010. ACGL AHL AXS AWH MRH PRE PTP RNR VR ALTE ENH 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 4% 6% 8% 10% 12% 14% 16% Std. Dev. |
16 Our strategy is to diversify our book of business so that property cat is one of many components 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 Australia floods, New Zealand earthquake, Japan earthquake and tsunami, US spring storms, Hurricane Irene, Thai floods 2010 Chile earthquake, New Zealand earthquake 2008 Hurricanes Ike/Gustav Superior Risk Management Alterra’s losses from catastrophe events as a % of equity are below our peer group average |
17 Peer PML’s as a Percent of Shareholder’s Equity ____________________ Source: Dowling & Partners Research Note: ALTE includes proportionate share of New Point Re IV. RNR and PRE do not disclose their PMLs for either 1-in-100 year events or 1-in-250 year events. All data is based on RMS 11. RE and TRH utilize AIR. 0% 5% 10% 15% 20% 25% 30% 35% FSR ENH VR ALTE AXS AHL ACGL AWH MRH TRH RE PTP As of December 31, 2011 1 in 100 1 in 250 |
18 2011 – “The Year of The Cat” Alterra’s Ratio Of Losses To Equity Are Below The Peer Group __________________ Source: Company reports and SNL Financial 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 FSR PRE PTP MRH RE TRH AHL VR ENH RNR AGII ACGL AWH ALTE Losses Percentage of January 1, 2011 Capital and Surplus |
2010 – Chile Earthquake / Windstorm Xynthia/ September New Zealand Earthquake Alterra’s 2010 Losses Are Below Peer Group ____________________ 0% 2% 4% 6% 8% 10% 0 50 100 150 200 250 300 350 400 450 FSR PTP (1) VR (2) RNR (3) MRH RE PRE AHL AXS (2) TRH (2) AWH (2)(4) ENH AGII (1)(5) ACGL(1) ALTE (6) Ultimate Net Losses Reported Percentage of January 1, 2010 Capital and Surplus 19 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. |
20 2008 – Hurricanes Ike / Gustav ____________________ Source: Company filings, as of 12/31/08. Losses are generally disclosed net of reinstatement premiums. (1) Equity includes preferred shares, which subsequently converted to common shares. (2) Results reflect Ike only. (3) Equity includes preferred shares, which subsequently converted to common shares. (4) TRH does not disclose specific losses but did lose "$169.7 million principally relating to Hurricane Ike." 0% 2% 4% 6% 8% 10% 12% 14% 0 50 150 200 250 300 350 400 450 VR FSR RNR MRH IPCR(1) PTP(1) ACGL AXS PRE(2) HP(3) AHL ENH ORH TRH(4) AWH RE MXGL Ultimate Net Losses Reported Percentage of June 30, 2008 Capital and Surplus 100 |
21 PML goal of no more than 25% of starting capital in 1 in 250 year event Adjust position as market pricing makes risk/reward attractive Use RMS with “all switches on” and gross-up factors on standard model Incorporate AIR, market share, industry and client historical loss data Capture detailed location data and put a premium on data quality Historically our losses for events have been close to expected ranges PML and aggregate usage is incorporated into our pricing models Key In-force PMLs as of April 1, 2012 US wind 1 in 100 year event - $496 million net loss (17.7% of 1/1/12 shareholders’ equity) California earthquake 1 in 250 year event - $358 million net loss (12.7% of 1/1/12 shareholders’ equity) Europe wind 1 in 100 year event - $144 million net loss (5.1% of 1/1/12 shareholders’ equity) Cat Aggregate & PML Management |
Reserve for Losses and Loss Expenses 22 Global Insurance Reinsurance U.S. Insurance Alterra at Lloyd’s Latin America 32% 33% 34% 36% 37% 37% 35% 35% 68% 67% 66% 64% 63% 63% 65% 65% 0 500 1,000 1,500 2,000 2,500 Q1 2012 Q4 2011 Q1 2012 Q4 2011 Q1 2012 Q4 2011 Q1 2012 Q4 2011 Q1 2012 Q4 2011 IBNR Case $1,296 $1,286 $ 382 $357 $483 $451 $46 $34 $2,115 $2,088 |
23 Favorable Reserve Development $5.9 $45.1 $90.8 $77.2 $105.5 $153.3 Development as a % of Net Reserves prior to development 0.3% 2.5% 4.1% 3.4% 3.4% 4.6% Reserve Development History ($ in millions) ____________________ $1,840 $1,796 $2,128 $2,213 $2,985 $3,182 - 500 1,000 1,500 2,000 2,500 3,000 3,500 2006 2007 2008 2009 2010 2011 Net Loss Reserves Note: 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. |
24 High Quality, Liquid Investment Portfolio As of March 31, 2012 Alterra maintains a high quality, liquid portfolio 95.7% of portfolio in fixed income/cash, which consists of highly rated securities Assets are generally matched to liabilities Cycle management extends to investments Cash balance $844.7 million or 10.8% of portfolio Average fixed income duration of approximately 4.2 years, including cash 60.0% of the cash and fixed maturities portfolio is held in cash, government / agency-backed securities and “AAA” securities 68.9% of fixed income portfolio rated “AA” or better Hedge fund investments are marked-to-market Minimal exposure to selected asset classes CMBS of $365.1 million (5.5% of portfolio) – average rating of AA+/Aa1 ABS of $264.5 million (4.0% of portfolio) RMBS of $1,311.2 million (19.8% of portfolio) – 92.5% agency- backed No CDO’s, CLO’s, SIV’s or other highly structured securities Less than $13.3 million of OTTI losses over the last eight quarters Carrying Value $7.8 billion March 31, 2012 Cash 11% Other Investments 4% Fixed Income 85% |
25 European Government Holdings Total European government holdings represent $751.0 million, or 9.6%, of the $7.8 billion investment portfolio. No exposure to Greece, Portugal, Italy, Ireland or Spain European financial institutions Total European financial institution holdings represent $421.5 million, or 5.4%, of the $7.8 billion investment portfolio. Two largest holdings, which total $121.3 million, are with government-backed financial institutions. European Exposure As of March 31, 2012 France 37% Germany 33% Netherlands 20% Belgium 3% United Kingdom 6% Denmark 1% Other 1% European Investment Bank 16% KFW 13% Credit Suisse 8% Lloyds 6% UBS 7% BNP Paribas 5% HSBC 5% Barclays 6% Other 34% |
26 ____________________ Note: Primary price / diluted book value multiple as of 5/9/12. 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 0.88x |
27 Expands our market clout and footprint Reduces underwriting risk Increases fee income Earlier recognition of profits Assists in the risk management process Can dial down as market pricing improves Reduces Volatility and Improves the Near-term ROE Disciplined Underwriting Management Benefits of Ceding Premium Include: |
28 GPW $ millions Q1 2012 Q1 2011 Period over Period Growth % Bermuda/ Dublin 130.5 97.2 US Reinsurance 24.4 26.2 GPW on contracts bound by Alterra in the period 1 154.9 123.4 25.5% Alterra’s share of New Point Re IV premiums 2 27.9 - Total property reinsurance gross premiums 182.8 123.4 48.1% Total property reinsurance net premiums 122.0 90.3 35.1% Growth in Property Reinsurance Premiums 1 Excluding premium adjustments and reinstatement premiums. 2 34.8% share of New Point Re IV gross premiums written. These premiums are not included in Alterra’s reported gross premiums written as the investment in New Point Re IV is accounted for under the equity method. |
29 Appendices |
30 March 31, December 31, 2012 2011 Cash & Fixed Maturities 7,472 $ 7,528 $ Other Investments 333 287 Premium Receivables 870 715 Losses Recoverable 1,108 1,068 Other Assets 793 588 Total Assets 10,576 $ 10,186 $ Property & Casualty Losses 4,323 $ 4,217 $ Life & Annuity Benefits 1,204 1,191 Deposit Liabilities 151 151 Funds Withheld 93 112 Unearned Premium 1,222 1,021 Senior Notes 441 441 Other Liabilities 291 244 Total Liabilites 7,725 $ 7,377 $ Shareholders' Equity 2,851 2,809 10,576 $ 10,186 $ Strong Balance Sheet ($ in millions) |
31 YTD Results Comparison ($ in millions) Quarter ended Mar. 31, Mar. 31, 2012 2011 Gross Premiums Written 661 $ 628 $ Net Premiums Earned 338 380 Net Investment Income 59 58 Net Realized and Unrealized Gains (Losses) on Investments 25 (19) Other Than Temporary Impairment Charges (5) (1) Other Income 5 1 Total Revenues 422 419 Total Losses, Expenses & Taxes 343 466 Net Income (Loss) 79 $ (47) $ Net Operating Income (Loss) 68 $ (25) $ Property & Casualty Underwriting Loss Ratio 61.0% 80.2% Expense Ratio 31.6% 32.3% Combined Ratio 92.6% 112.5% |
32 Quarter ended March 31, 2012 ($ in millions) Totals in table may not add due to rounding. (1) Property and Casualty only. Diversified Operating Platform Property & Casualty Global Insurance U.S. Insurance Reinsurance Alterra at Lloyd's Latin America Total Life & Annuity Reinsurance Corporate Consolidated Gross premiums written $66.8 $104.3 $318.4 $146.1 $25.3 $660.9 $0.4 - $ 661.3 $ Reinsurance premiums ceded (43.3) (70.5) (59.5) (38.6) (12.6) (224.4) - - (224.5) Net premiums written $23.5 $33.8 $258.9 $107.6 $12.7 $436.5 $0.4 - $ 436.9 $ Earned premiums $94.1 $96.2 $194.7 $72.9 $19.5 $477.4 $0.4 - $ 477.8 $ Earned premiums ceded (47.1) (40.5) (26.8) (20.0) (5.3) (139.7) - - (139.7) Net premiums earned 47.0 55.8 167.9 52.9 14.2 337.8 0.4 - 338.2 Net losses and loss expenses (18.1) (37.6) (101.2) (38.7) (10.5) (206.0) - - (206.0) Claims and policy benefits - - - - - - (13.5) - (13.5) Acquisition costs (0.1) (7.7) (38.7) (9.4) (3.8) (59.6) (0.1) - (59.7) General and administrative expenses (6.5) (12.3) (17.1) (9.1) (2.3) (47.1) - - (47.2) Other income 0.8 0.1 4.4 5.3 - - 5.3 Underwriting income (loss) 23.2 (1.7) 15.4 (4.4) (2.3) 30.3 n/a - n/a Net investment income 14.8 43.9 58.7 - 25.5 25.5 (5.4) (5.4) Corporate other income Interest expense (8.6) (8.6) Net foreign exchange gains Corporate general and administrative expenses (12.9) (12.9) Income before taxes $1.6 $42.6 $74.4 Loss ratio 38.5% 67.3% 60.3% 73.2% 74.0% 61.0% Acquisition cost ratio 0.1% 13.8% 23.0% 17.9% 26.4% 17.6% General and administrative expense ratio 13.8% 22.0% 10.2% 17.2% 15.9% 14.0% Combined ratio (1) 52.4% 103.1% 93.4% 108.2% 116.2% 92.6% Net realized and unrealized gains on investments Net impairment losses recognized in earnings - - - - - - |