Max Cap CEO Letter to Investors Recaps 2008, Gives 2009 Outlook

January 26, 2009

W. Marston (Marty) Becker, Chairman and CEO of the Bermuda-based Max Capital Group has issued a letter addressed to the Company’s shareholders, employees and other stakeholders updating them on Max Capital’s performance and progress in 2008 and on its 2009 outlook. The full text of the letter also appears on the Company’s web site –

The letter, which will be followed on February 11, 2009 by the issuance of the Company’s financial results for its fourth quarter and full year ended December 31, 2008, describes the year just ended as “a terrific operating year overshadowed by unprecedented investment volatility,” and projects strong performance in 2009.

Becker stressed that “In 2008, Max experienced a terrific operating year overshadowed by unprecedented investment volatility.” It projects gross written premiums of $1.255 billion, with losses from Gustav an Ike at around $50 million.

Becker noted that “Max Specialty, the US excess & surplus lines platform established in 2007, demonstrated the strength of its team’s distribution relationships and produced GPW of approximately $195 million at an attractive loss ratio on this predominately short tail business of approximately 70 percent. The CR remains high at approximately 139 percent, as Max Specialty continues to have its earned premium grow into its initial expense base.”

He also pointed out that Max had acquired “a Lloyd’s managing agent, Max at Lloyd’s, which manages three syndicates at Lloyd’s. This entry into the world’s most famous specialty marketplace is a terrific complement to the Company’s existing specialty insurance and reinsurance businesses, and is expected to be accretive to Max in 2009. As prices for insurance and reinsurance currently appear to be shifting in favor of vendors, we believe the acquisition of Max at Lloyd’s was particularly well-timed.”

After reviewing the Group’s performance throughout 2008, Becker wrote that Max is ” now a great deal more than the organization that was formed in Bermuda in 1999 to write ‘structured/alternative risk’ reinsurance products and to execute a unique investment strategy.”

He then reviewed the Group’s investment strategy, noting that “this year’s investment volatility had a detrimental impact on an otherwise very consistent track record of financial performance. Such results exhort the further significant reduction in alternative investments that is planned and underway. Max is committed to limiting its exposure to investment risk to a level that is no longer a material outlier relative to the investment allocations of its peer group. The Company expects to be able to deploy more of its capital in profitable underwriting activities, as opportunities arise.”

As far as 2009 is concerned, Becker noted: “Most every recent article about our industry has highlighted the likelihood of an improved underwriting environment in 2009, and we agree with this outlook. The current financial crisis has affected the insurance industry in a number of ways. Investment losses by many insurance companies have been so severe that overall capacity was significantly curtailed in 2008, a year that also saw high catastrophe losses and the downfall of some major insurance franchises.

“This combination of factors, as well as the extraordinary tightening of credit markets that is likely to limit capital investment in 2009, points to the development of an improved pricing environment for insurance companies. Our view is that the pricing improvements will occur first in the shorter tail lines (property, aviation, etc.), and then, as the year progresses, migrate to some of the longer-tail casualty lines of business.

“Max’s renewals at January 1, 2009 would support this view, as property rates on line were up – particularly in reinsurance – and casualty pricing was no longer down, but was relatively flat. With this pricing improvement and with Max’s expansion of underwriting platforms and capabilities, GPW in 2009 is projected to grow by approximately 21 percent to approximately $1,230 million in the Company’s specialty property and casualty business. For Max’s life business we will again target $150 million of GPW. The lumpy nature of this business makes it challenging to budget volumes.”

He concluded “Max is very well-positioned to take advantage of the emerging opportunities in our industry. With its global reach and insurance and reinsurance capabilities, the Company can effectively allocate capital to those segments of the market that will provide the highest returns. Max’s business mix and investment mix provide the potential for this to be a very good year for our shareholders.”

Source: Max Capital

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