President: ‘Profitable Year For Alterra’

February 9, 2011

1alterraBermuda re/insurer Alterra Capital Holdings Limited yesterday [Feb. 8] reported net income of $79.7 million, or $0.69 per diluted share, for the fourth quarter of 2010, compared to net income of $62.6 million, or $1.08 per diluted share, for the same quarter of 2009. Alterra, formerly known as Max Capital Group Ltd., was formed on May 12, 2010 by the merger of Max and Harbor Point Limited, a privately held company.

Net operating income for the fourth quarter of 2010 was $76.2 million, or $0.66 per diluted share, compared to net operating income of $60.5 million, or $1.04 per diluted share, for the same quarter of 2009. Annualized net operating return on average shareholders’ equity for the fourth quarter of 2010 was 10.2%.

For the year ended December 31, 2010, Alterra reported net income of $302.3 million, or $3.17 per diluted share, compared to net income of $246.2 million, or $4.26 per diluted share, in 2009. Net operating income for the year ended December 31, 2010 was $251.7 million, or $2.64 per diluted share, compared to net operating income of $208.9 million, or $3.62 per diluted share, in 2009. Net operating return on average shareholders’ equity for the year ended December 31, 2010 was 10.2%.

Heaquartered in Hamilton, Alterra Capital Holdings Limited is a global enterprise dedicated to providing diversified specialty insurance and reinsurance products to corporations, public entities and property and casualty insurers.

Alterra’s 2010 results include the results of operations for the former Harbor Point companies from May 12, 2010. Comparative figures for 2009 represent the former Max results of operations only. Accordingly, a comparison of Alterra’s gross premiums written and other results of operations for current and prior periods are not meaningful.

W. Marston (Marty) Becker, president and CEO of Alterra, said: “It has been an exciting and profitable year for Alterra and our shareholders. Our success continues to be tied to our strategy of opportunistically entering complementary market segments with attractive underwriting prospects, while consistently deploying ‘best in class’ underwriting talent to build profitable books of business and better serve our clients.”

Mr. Becker added: “In 2010, the insurance markets continued to be impacted by competitive pricing that became increasingly more aggressive as the year progressed. In this environment, our foremost objective was, and is, to maintain our underwriting discipline, and we believe we have done this well to date. As evidence of this, we expect losses from the recent events in Australia and Egypt to be within our normal ranges.”

“With declining premiums but continuing profitability, excess capital is inevitably generated. We are committed to the flexible and efficient management of capital, and accordingly we are pleased to have returned over $558 million to our shareholders in 2010, in the form of regular dividends, a special dividend, and share repurchases.”

“We are well positioned to navigate the uncertainty of the present industry environment, and to capture meaningful opportunity at the cycle inflection point. In the interim, we intend to continue to focus on growth in book value per share, capital management and a competitive dividend, and to protect our clean and strong balance sheet,” Mr. Becker concluded.

Fourth quarter 2010 results for Alterra include:

•Property and casualty gross premiums written of $313.5 million, representing an increase of $37.1 million, or 13.4%; net premiums written of $236.0 million, representing an increase of $62.6 million, or 36.1%; and net premiums earned of $340.8 million, representing an increase of $135.3 million, or 65.8%; each as compared to the same quarter of 2009. The percentage increases in these figures primarily reflect incremental growth from recent expansion initiatives, including the merger with Harbor Point – whose premiums are not included in the comparative 2009 results of operations – as well as from new operations in Latin America and new product offerings at Alterra at Lloyd’s. These increases were partially offset by decreases in previously existing operations where writings were reduced due to unattractive returns;
•A combined ratio on property and casualty business of 84.8% compared to 81.2% in the same quarter of 2009;
•Property catastrophe event and significant per-risk net losses of $13.0 million compared to no material property catastrophe losses in the same quarter of 2009;
•Net favorable development on prior years’ loss reserves of $28.0 million, or 8.3 combined ratio points, compared to $30.9 million, or 15.0 combined ratio points, in the same quarter of 2009;
•Net investment income of $61.1 million compared to $44.7 million in the same quarter of 2009, an increase of 36.7%;
•Increased general and administrative expenses principally due to a shift in the allocation of performance based compensation from equity to cash awards; and
•Net operating income of $76.2 million, or $0.66 per diluted share, representing an annualized net operating return on average shareholders’ equity of 10.2%.

Gross premiums written from property and casualty underwriting for the fourth quarter of 2010 were $313.5 million, generated by the segments as follows: insurance – $101.1 million, a decrease of $23.9 million, or 19.1%; reinsurance – $110.6 million, an increase of $43.9 million, or 65.8%; U.S. specialty – $77.7 million, an increase of $11.5 million, or 17.4%; and Alterra at Lloyd’s – $24.0 million, an increase of $5.6 million, or 30.7%. Gross premiums written included $4.8 million from our operations in Latin America, which started in the first quarter of 2010.

Combined ratios for the fourth quarter of 2010 by segment were 76.0% for insurance, 82.8% for reinsurance, 100.2% for U.S. specialty and 86.4% for Alterra at Lloyd’s.

Results for the year ended December 31, 2010 include:

•Property and casualty gross premiums written of $1,405.8 million, representing an increase of $74.6 million, or 5.6%; net premiums written of $1,035.0 million, representing an increase of $183.9 million, or 21.6%; and net premiums earned of $1,168.0 million, representing an increase of $376.9 million, or 47.7%; each as compared to 2009. The percentage increases in these figures primarily reflect incremental growth from recent expansion initiatives, including the merger with Harbor Point – whose premiums are not included in the comparative 2009 results of operations – as well as from new operations in Latin America and new product offerings at Alterra at Lloyd’s. These increases were partially offset by decreases in previously existing operations where writings were reduced due to unattractive returns;
•A combined ratio on property and casualty business of 85.7% compared to 88.1% in 2009;
•Property catastrophe event and significant per-risk losses of $54.9 million compared to $10.4 million in 2009;
•Net favorable development on prior years’ loss reserves of $105.5 million, or 9.0 combined ratio points, compared to $78.3 million, or 9.9 combined ratio points, in 2009;
•Net investment income of $222.5 million compared to $169.7 million in 2009, an increase of 31.1%; and
•Net operating income of $251.7 million, or $2.64 per diluted share, representing a net operating return on average shareholders’ equity of 10.2%.

Gross premiums written from property and casualty underwriting for the year ended December 31, 2010 were $1,405.8 million, generated by the segments as follows: insurance – $370.1 million, a decrease of $57.6 million, or 13.5%; reinsurance – $509.1 million, an increase of $20.0 million, or 4.1%; U.S. specialty – $324.0 million, an increase of $38.5 million, or 13.5%; and Alterra at Lloyd’s – $202.6 million, an increase of $73.7 million, or 57.1%. There were no new contracts written within the life and annuity segment during the year ended December 31, 2010.

Combined ratios for the year ended December 31, 2010 by segment were 73.6% for insurance, 86.8% for reinsurance, 97.9% for U.S. specialty and 83.4% for Alterra at Lloyd’s.

Balance Sheet
Total invested assets, including cash and cash equivalents, were $7.9 billion at December 31, 2010, an increase of $2.6 billion from December 31, 2009. The increase in total invested assets primarily reflects additional invested assets from the Harbor Point investment portfolio. As of December 31, 2010, 96.0% of the fixed maturities portfolio (by carrying value) was investment-grade, a decrease of 0.6 percentage points from December 31, 2009. As of December 31, 2010, the weighted average book yield of Alterra’s cash and fixed maturities portfolio was 3.22% and the weighted average duration was 4.2 years.

Net investment income for the fourth quarter of 2010 increased to $61.1 million from $44.7 million for the same quarter of 2009, and to $222.5 million from $169.7 million for the years ended December 31, 2010 and 2009, respectively. The increase in net investment income reflects the additional investment income from the Harbor Point investment portfolio since the consummation of the merger, and an increased allocation to higher-yielding fixed maturity securities.

Under the Board-approved share repurchase authorization, Alterra repurchased 5,236,085 of its common shares during the fourth quarter of 2010 at an average price of $20.88 per share for a total of $109.3 million. Share repurchases for the year ended December 31, 2010 were 10,288,434 common shares at an average price of $20.19 per share for a total of $207.8 million. As of December 31, 2010, $127.8 million remained under the Board-approved share repurchase authorization.

Shareholders’ equity was $2,918.3 million as of December 31, 2010, an increase of 86.5% from December 31, 2009, reflecting the impact of the merger. Diluted book value per share as of December 31, 2010 was $25.99, an increase of 5.7% from December 31, 2009 after adding back $2.94 per share in dividends paid to shareholders during the year.

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