S&P Affirms Max Cap’s Ratings – Off CreditWatch; Outlook Positive

June 17, 2009

Standard & Poor’s Ratings Services has affirmed its ‘BBB-‘ counterparty credit rating on Max Capital Group Ltd. and removed it from CreditWatch, where it was placed on March 2, 2009.The outlook on the group’s ratings is positive.

S&P took the actions following the announcement that Max capital has terminated its agreement and plan of amalgamation with IPC Holdings Ltd. (See previous articles)

In contrast S&P has placed IPC Holdings ratings on CreditWatch negative (See following article).

S&P explained that it had placed Max Capital’s ratings on CreditWatch positive to reflect its “expectation that the merger would have established a consolidated entity of significant scale relative to peers, with increased global client access, excess capital, reduced hedge fund exposure, and decreased earnings/capital volatility.”

“The termination of the opportunistic merger with IPC does not change our favorable view of Max Capital’s strategic initiatives,” stated credit analyst Damien Magarelli. “These include diversifying its client base, expanding the current distribution channels, and reducing its alternative investment portfolio allocation.”

In addition S&P noted that even though the merger has fallen through, Max Cap has “marginally improved its earnings in 2009, decreased financial leverage, and reduced its hedge fund exposure. The rating is also based on Max Capital’s good competitive position as a diversified insurance and reinsurance company, its strong underwriting performance, and its adequate enterprise risk management, with the potential to become strong in the near future.”

As a result S&P said it “will be positioned for an upgrade in the next six to 12 months,” which is reflected in the positive outlook. “We consider Max Capital’s competitive position to be good, and we believe the company will decrease writings, cancel business, and maintain risk-tolerance levels if the casualty market prices decline further,” the bulletin continued.

“For us to consider an upgrade, Max Capital would need to attain strong capitalization, a combined ratio of no more than 98 percent, leverage of less than 20 percent, alternative investments allocation of less than 10 percent, and strong earnings. The company would also have to maintain a good competitive position and investment losses that are within its risk tolerances.

“Alternatively, we could revise the outlook to stable if Max Capital does not improve its operating performance (through both disciplined underwriting and investing performance) and its capitalization. A revision of the outlook to stable is possible if Max Capital experiences losses outside its enterprise risk management tolerances for earnings, investments, or capital.”

Source: Standard & Poor’s – www.standardandpoors.com

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