Max Capital Group Ltd. (MXGL)

Q1 2010 Earnings Call

May 4, 2010 10:00 am ET


Susan Spivak Bernstein - SVP, Investor Relations

Marty Becker - Chairman & CEO

Joe Roberts - CFO


Mark Dwelle - RBC Capital Markets

Ian Gutternman - Adage Capital



Good day ladies and gentlemen and welcome to the first quarter 2010 Max Capital Group earnings conference call. My name is Alisha, and I’ll be your coordinator for today. At this time, all participants are in listen-only mode. We’ll be conducting a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would like to turn the presentation over to your host for today’s call Susan Spivak Bernstein, SVP, Investor Relations.

Susan Spivak

Good morning and welcome to Max Capital first quarter 2010 earnings conference call. Last night, we issued our press release and financial supplement which are available on our website at Speaking on today’s call will be Marty Becker, Chairman and CEO; and Joe Roberts, Chief Financial Officer. Following the prepared remarks, we’ll open it up to Q&A.

Before proceeding with the discussion, we’ll remind you that this call may include forward-looking statements with respect to [Max Harbor] point in the industry that reflects its 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 or will be 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. Any forward-looking statements made in this call are qualified by these cautionary statements and there can be no assurance that the actual results for development anticipated by Max will be realized or even if substantially realized that they will have the expected consequences to or effects on Max or its business or operation.

Max undertakes no obligation to update publicly or revise any forward-looking statements whether as a result of new information, future developments or otherwise.

With that I’ll turn the call over to Marty Becker, Chairman and CEO.

Marty Becker

Thank you Susan and good morning and welcome to Max Capital’s first quarter 2010 conference call. Max’s first quarter continues the nice consistency of financial performance that we achieved in 2009. Max’s strategy to emphasize diversification and balance between our specialty insurance and re-insurance businesses as well as between short and long tail business based on market conditions continues to serve us and our shareholder’s well. Most importantly, during the quarter we announced our merger of vehicles with Harbor Point. This transaction is a valuable and strategic next step for both Max and Harbor Point and should close later this quarter.

For the first quarter we reported net operating income of $40.7 million or $0.71 per diluted share compared to $46.9 million or $0.82 per diluted share last year. In line with our plan for the year, our overall PNC gross written premiums were 14% lower in the first quarter compared to a year-ago. The only meaningful difference to plan is on our Ag reinsurance book where we lost one meaningful contract due to an M&A transaction.

I am very pleased that all four of our profiting cash, the underwriting segments produce favorable underwriting results with a combined ratio of 90.5%. Fully diluted book value per share of 27.86 was up 27% from a year ago and almost 2% for the quarter. Our ROE was below our previously disclosed target as we not only had to suspend our share repurchase program as a result of the Harbor Point announcement but our asset values grew in the quarter more than we had anticipated.

Market conditions continue to be challenging globally. Max’s renewal book has performed well. Our Bermuda/Dublin insurance and re-insurance segments produced less premium in 2009 given market condition.

Pricing on renewals has been flat to down in the low single digits in most lines of business. Property CAD has actually been down more with pricing reductions around 10%. Renewal retention has remained good in the mid 80’s, but when we loose an account, it is typically the result of a significant price deviation. There remains select pockets of opportunity in the marketplace, but the overall pricing trend is clearly lackluster. Max is well positioned with both our product and geographic diversity to continue to maintain our book where we can earn attractive returns while scaling back in areas with softer pricing. As a result, our combined ratios have remained at reasonable levels even as we’ve been decreasing gross premiums written.

In a quarter where the industry has suffered a remarkably high level of worldwide catastrophe losses that are estimated in the $16 billion range, Max once again demonstrated how our conservative underwriting strategy limited our aggregate exposure to these property catalogs events.

Our losses of approximately $10 million were low compared to our peers in less than 1% of our opening shareholders equity for the quarter. This compares to our initial estimates of $10 to $20 million for the Chilean earthquake and winter storms (inaudible) and actually also includes our losses for the Australian hailstorm. Our pro forma losses combined with Harbor Point of 30 to 50 million were also at the lower end of our peer group.

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