Max Capital Group Reports First Quarter 2010 Results

Max Capital Group Ltd. (NASDAQ:MXGL) (BSX:MXGL.BH) ("Max”) today reported net income of $36.4 million, or $0.63 per diluted share, for the quarter ended March 31, 2010, compared to net income of $44.5 million, or $0.78 per diluted share, for the quarter ended March 31, 2009.

Net operating income for the first quarter of 2010 was $40.7 million, or $0.71 per diluted share, compared to net operating income of $46.9 million, or $0.82 per diluted share, last year. Annualized net operating return on average shareholders’ equity for the first quarter of 2010 was 10.2%.

W. Marston (Marty) Becker, Chairman and Chief Executive Officer of Max, said: "The continuation of Max’s very solid financial results this quarter reflects the balance, diversification and flexibility that are the cornerstones of our business model. Where market conditions continue to provide attractive returns, we are well positioned to expand our presence, while scaling back in areas with softer pricing. As a result, our combined ratios have been maintained at strong levels even as we have decreased gross premiums written.

"Another key factor in the quarter was our relatively low property catastrophe losses. Considering the size of the industry losses for the headline cat events during the first quarter, we believe our estimated losses of approximately $10.0 million illustrate our conservative underwriting strategy, which is designed to limit our exposure to property cat events.

"Looking forward, our new Latin America team is firmly establishing itself in the market, and we expect it to make a meaningful contribution to group results before the end of this year.

"Most importantly, our ability to write a broad mix of short- and long-tail product lines from multiple jurisdictions should be further enhanced as a result of our pending merger with Harbor Point, which was approved by Max’s and Harbor Point’s respective shareholders on April 29. Once the closing occurs, the combined entity, which will be branded as Alterra Capital Holdings Limited, will bring together the first-class reinsurance group at Harbor Point with Max’s broad base of established underwriting platforms in major insurance markets worldwide. We are excited by the many opportunities that the enhanced capital base and scale of Alterra will bring to all of our underwriting platforms,” Becker added.

First quarter 2010 results for Max include:

• Property and casualty gross premiums written of $370.3 million, representing a decrease of $63.4 million, or (14.6)%; net premiums written of $217.2 million, representing a decrease of $52.2 million, or (19.4)%; and net premiums earned of $193.5 million, representing an increase of $3.7 million, or 1.9%; each as compared to the same quarter in 2009;
• Property and casualty combined ratio of 90.5%, compared to 89.7% in the same quarter in 2009;
• Property catastrophe event losses of $9.6 million compared to $3.4 million in the same quarter in 2009;
• Net favorable development on prior years’ loss reserves of $17.1 million, or 8.8 combined ratio points, compared to $12.3 million, or 6.5 combined ratio points in the same quarter in 2009;
• Net investment income of $48.4 million compared to $40.5 million in the same quarter in 2009, an increase of 19.5%;
• Net operating income of $40.7 million, or $0.71 per diluted share, representing an annualized net operating return on average shareholders’ equity of 10.2%; and
• Book value per diluted share of $27.86 at March 31, 2010, representing an increase of 1.8% from December 31, 2009.

Gross premiums written from property and casualty underwriting for the quarter ended March 31, 2010 were $370.3 million, generated by the segments as follows: insurance $66.4 million; reinsurance $154.9 million; U.S. specialty $76.9 million; and Max at Lloyd’s $72.1 million.

Segment combined ratios for the first quarter of 2010 were 86.1% for insurance, 92.7% for reinsurance, 98.8% for U.S. specialty and 82.5% for Max at Lloyd’s.

Gross premiums written decreased by $21.3 million or (24.3)% for insurance and by $78.1 million or (33.5)% for reinsurance. Gross premiums written increased by $8.1 million, or 11.8% for U.S. specialty and by $27.9 million, or 63.1%, for Max at Lloyd’s compared with the quarter ended March 31, 2009. There were no new contracts written within the life and annuity segment during the first quarter of 2010.

Balance Sheet

Total invested assets, including cash and cash equivalents, were $5.3 billion at March 31, 2010, an increase of $85.4 million from December 31, 2009. The credit quality of Max’s fixed maturities investment portfolio remains high. At March 31, 2010, 95.9% of the fixed maturities portfolio (by carrying value) was investment-grade, compared to 96.7% at December 31, 2009. Max recognized other-than-temporary impairment losses through earnings of $0.4 million for the first quarter of 2010, compared to no impairment losses during the same period in 2009.

Net investment income for the first quarter of 2010 increased to $48.4 million from $40.5 million for the same period in 2009. The increase in net investment income reflects a reduction in cash balances and increased allocation to higher-yielding fixed maturity securities.

During the first quarter of 2010, under the Board-approved share repurchase authorization, Max repurchased 516,957 of its common shares at an average price of $23.00 per share for a total amount of $11.9 million. There were no repurchases of common shares in the first quarter of 2009.

Shareholders’ equity was $1,613.1 million at March 31, 2010, an increase of 3.1% over December 31, 2009. Book value per share at March 31, 2010 was $28.31 compared to $28.01 at December 31, 2009, an increase of 1.1%. Book value per diluted share at March 31, 2010 was $27.86 compared to $27.36 at December 31, 2009, an increase of 1.8%.

Amalgamation with Harbor Point Limited

Actions required to consummate the amalgamation with Harbor Point Limited ("Harbor Point”) were approved by the shareholders of both Max and Harbor Point on April 29, 2010, and closing is expected to occur in the second quarter of 2010.

First quarter 2010 results for Harbor Point include:

• Net income of $33.5 million compared to $41.5 million in the same quarter in 2009;
• Gross premiums written of $306.6 million compared to $228.5 million in the same quarter in 2009, an increase of 34.2%;
• Net premiums earned of $144.1 million compared to $127.3 million in the same quarter in 2009, an increase of 13.2%;
• Combined ratio of 94.3% compared to 82.0% in the same quarter in 2009;
• Property catastrophe event losses of $35.0 million compared to $3.3 million in the same quarter in 2009;
• Net favorable development on prior years’ loss reserves of $9.6 million, or 6.6 combined ratio points, compared to $0.3 million, or 0.2 combined ratio points, in the same quarter in 2009;
• Net investment income of $16.5 million compared to $18.7 million in the same quarter in 2009; and
• Shareholders’ equity of $1,926.1 million at March 31, 2010, representing an increase of 1.9% from December 31, 2009.

A copy of Max’s financial supplement for the first quarter will be available on Max’s website at www.maxcapgroup.com shortly after the release of earnings.

Max will host a conference call on Tuesday, May 4, 2010 at 10:00am (EDT) to discuss this release with interested investors and shareholders. The conference call can be accessed via telephone by dialing 1-888-679-8018 (toll-free U.S.) or 1-617-213-4845 (international) and using access code 79071725. Live broadcast of the conference call will also be available through Max’s website at www.maxcapgroup.com.

Max Capital Group Ltd. is a global enterprise dedicated to providing diversified specialty insurance and reinsurance products to corporations, public entities, property and casualty insurers, and life and health insurers in major markets worldwide. Harbor Point Limited is a Bermuda-based holding company with property and casualty reinsurance operations in Bermuda, the USA and the UK.

Non-GAAP Financial Measures

In presenting Max’s results, management has included and discussed net operating income per diluted share, net operating return on average shareholders’ equity, book value per share and diluted book value per share. Such measures are "non-GAAP financial measures” as defined in Regulation G. Management believes that these non-GAAP financial measures, which may be defined differently by other companies, allow for a more complete understanding of Max’s business. These measures, however, should not be viewed as a substitute for those determined in accordance with U.S. GAAP. The reconciliation of such measures to their respective most directly comparable U.S. GAAP financial measures is presented in the attached financial information in accordance with Regulation G.

Cautionary Note Regarding Forward-Looking Statements

This press release may include forward-looking statements, both with respect to Max and its industry, that reflect 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.

Max believes that these factors include, but are not limited to, the following: (1) the adequacy of loss 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 effects of emerging claims and coverage issues; (4) changes in general economic conditions, including changes in capital and credit markets; (5) the effect of competition and cyclical trends, including with respect to demand and pricing in the insurance and reinsurance markets; (6) any lowering or loss of financial ratings; (7) the occurrence of natural or man-made catastrophic events with a frequency or severity exceeding expectations; (8) the loss of business provided to Max or Harbor Point by their major brokers; (9) the effect on each of Max’s and Harbor Point’s investment portfolio of changing financial market conditions including inflation, interest rates, liquidity and other factors; (10) tax and regulatory changes and conditions; (11) the integration of Max and Harbor Point or new business ventures Max may enter into; and (12) retention of key personnel, as well as 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 Max’s most recent report on Form 10-K and other documents on file with the Securities and Exchange Commission. Any forward-looking statements made in this press release are qualified by these cautionary statements, and there can be no assurance that the actual results or developments 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 operations. Max undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.