Fitch Affirms Max Capital's Ratings; Outlook Stable
CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'A-' issuer default rating (IDR) of Max Capital Group Ltd. (Max Capital) and the 'A' insurer financial strength (IFS) ratings of its insurance subsidiaries, Max Bermuda Ltd., Max Re Europe Limited, Max Insurance Europe Limited and Max Specialty Insurance Company (Max Specialty). Fitch has also affirmed the 'A-' IDR and 'BBB+' senior debt rating of Max USA Holdings Ltd., a direct, wholly-owned holding company subsidiary of Max Capital. The Rating Outlook is Stable.
Fitch's ratings on Max Capital reflect the company's disciplined and flexible approach to managing underwriting risk and investment risk, and recent favorable operating results. Partially offsetting these positives is the execution risk derived from Max Capital's growing specialty product strategy and reserve risk associated with the long-tail casualty reinsurance/insurance lines that the company started writing in 2002/2003.
Max Capital's strategy is designed to be flexible and take advantage of insurance industry trends that management believes are providing the best opportunity for returns on capital. Most recently the company entered the U.S. excess and surplus lines market through Max Specialty as an opportunity to further diversify the company's property/casualty product and geographic exposure.
While Fitch recognizes the benefits of Max Capital's strategy of maintaining underwriting flexibility, it also creates additional execution risk. Fitch expects Max Capital to maintain its disciplined underwriting approach in the overall softening market environment.
Max Capital uses a series of proprietary and nonproprietary actuarial and financial models to manage its overall enterprise risk, with the level of underwriting risk assumed on the liability side of the balance sheet balanced relative to the investment risk taken on the asset side. Max Capital's investment strategy currently calls for a 20% allocation of total investments to consist of alternative investments, primarily hedge funds. This was reduced in 2006 from an allocation target of between 20% and 40% as the company is allocating more capital to underwriting opportunities, and thus reducing asset risk.
Overall profitability improved in 2006 and thus far in 2007, as catastrophe activity has subsided following sizable but manageable hurricane losses suffered in 2005. The combined ratio for the property/casualty segment was 86.4% in 2006 and 93.3% through the first six months of 2007, following 106% for the full year of 2005. Profitability was also helped in 2006 by favorable loss trends in the excess liability insurance business that resulted in positive prior year reserve development.
The following are affirmed by Fitch with a Stable Rating Outlook:
Max Capital Group Ltd.
-- Issuer Default Rating at 'A-'.
Max USA Holdings Ltd.
-- Issuer Default Rating at 'A-';
-- $100 million due 2017 at 'BBB+'.
Max Bermuda Ltd.
Max Re Europe Limited
Max Insurance Europe Limited
Max Specialty Insurance Company
-- Insurer financial strength at 'A'.
Brian C. Schneider, CPA, CPCU, +1-312-606-2321 (Chicago)
Tana M. Higman, +1-312-368-3122 (Chicago)
Kenneth Reed, +1-212-908-0540 (Media Relations, New York)