AM Best decision based on a reduction in the company’s riskier investments

AM Best has revised the outlook to positive from stable for all ratings of Max Capital Group (MXGL) and its subsidiaries.

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 are expected to position the company well for the current market hardening, particularly in property lines.

Concurrently, AM Best has affirmed the financial strength rating (FSR) of A- (Excellent) and issuer credit ratings (ICR) of “a-” of Max Bermuda Ltd. (Max) (Hamilton, Bermuda) and its affiliated companies.

The rating agency has also affirmed the ICR of “bbb-” of MXGL and the debt rating of “bbb-” for $100m 7.20% senior secured notes due April 2017 of Max USA Holdings Ltd (Delaware). Additionally, AM Best has affirmed the debt ratings for the existing shelf of MXGL, Max USA Holdings Ltd. and Max Capital Trust I.

These ratings 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 capitalisation.

With recently completed acquisitions in the Lloyd’s and US 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.

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% of total invested assets by year end. AM Best 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 capitalisation level despite the combination of an elevated risk charge and mark-to-market investment adjustments.