Best Affirms Max Capital Ratings; Revises Outlook to Positive

December 12, 2008

A.M. Best Co. has revised the outlook to positive from stable for all ratings of Bermuda-based Max Capital Group Ltd. (MXGL), and its subsidiaries. Best also affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit ratings (ICR) of “a-” of Max Bermuda Ltd. (Max) and its affiliated companies.

In addition, Best affirmed the ICR of “bbb-” of MXGL and the debt rating of “bbb-” for $100 million 7.20 percent senior secured notes due April 2017 of Max USA Holdings Ltd. (Delaware), and has affirmed the debt ratings for the existing shelf of MXGL, Max USA Holdings Ltd. and Max Capital Trust I.

“These ratings,” said Best, “reflect MXGL’s diversified book of insurance and reinsurance products, consistently solid operating results and effective risk management controls. The company’s book of business, which predominately contains long-tail casualty lines, is fully supported by an excellent level of risk-based capitalization.

“With recently completed acquisitions in the Lloyd’s and U.S. excess and surplus lines markets, MXGL’s operating platforms continue to expand into traditional property/casualty primary and reinsurance segments complemented by a life/annuity business focused on existing blocks of business where risk is generally reinsured on the same basis as the original policy. Life and annuity reinsurance products may include individual and group disability, whole life, universal life, structured settlements and others. The current life book does not contain any variable annuity business.”

Best also noted that, “although MXGL’s investment portfolio primarily consists of traditional fixed maturities, the company also maintains a substantial level of alternative investments, which consist of highly diversified and closely managed hedge funds. The performance of the alternative investment portfolio has been affected by current market turmoil and will result in negative returns for the year.

“Historically, MXGL’s management team has systematically reduced the company’s level of exposure to alternative investments and announced further reductions to approximately 15 percent of total invested assets by year end.” Best noted that it “includes an elevated risk charge for the alternative investment portfolio in MXGL’s risk-based capital model. MXGL is expected to maintain an excellent risk-based capitalization level despite the combination of an elevated risk charge and mark-to-market investment adjustments.”

Best said the “positive outlook is based on MXGL’s planned reduction of its riskier alternative investment portfolio allocation, evolving operating platform and increasing global presence. MXGL’s strategies should position it well for the current market hardening, particularly in property lines.”

Source: A.M. Best –

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