Max Capital Gains on Lower Costs

Max Capital Group (MXGL) reported fourth quarter operating earnings of $1.04 per share, beating the Zacks Consensus Estimate of 99 cents. Results were significantly ahead of the prior-year period loss of $1.52. Results were helped by lower expenses, partially offset by lower premiums written.

For the full year 2009, Max Capital reported an operating income of $208.9 million, or $3.62 per diluted share, compared to a net operating loss of $143.8 million, or $2.54 per diluted share last year.

Gross premiums written for the quarter were $278.3 million ($276.3 million from Property & Casualty and $2.0 from Life & Annuity), compared with $372.1 million ($224.1 million from P&C and $148.0 from L&A) in the prior-year period. The decrease was due to lower contribution from the L&A segments, which saw no new contracts during the quarter.

Net premiums earned decreased 31.2% year-over-year to $207.3 million.

On a consolidated basis, the company reported a combined ratio of 81.2%, far improved from 99.6% in the prior-year period, due to a 43.3% reduction in total expenses to $200.7.

Net investment income increased marginally by 1.1% year-over-year to $44.7 million.

Max Capital has significantly reduced its external borrowings in 2009. Total debt of $375.0 million has been repaid during 2009, reducing the company's debt to $90.5 million as of December 31, 2009. Book value per diluted share was $27.36 compared to $22.46 at December 31, 2008, an increase of 21.8%.

Annualized net operating return on equity (ROE) was 15.5% compared with negative 26.8% in the prior-year quarter. ROE for full year 2009 came in at 14.7% significantly improved from negative 10.0% in 2008. For 2010, management expects to achieve an ROE of 13.0%.

Max Capital has a diversified book of insurance and reinsurance products, consistently producing solid operating results, with effective risk management controls in place. Its book of business, which predominately contains long-tailed casualty lines, is fully supported by an excellent level of risk-based capitalization.

We also praise management’s planned reduction of the riskier alternative investment portfolio. We believe that a disciplined underwriting approach in this competitive market rate environment has helped Max to maintain its profitability.

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