Max Capital Group Ltd. reported a third quarter net loss of $163.2 million, or $2.79 per fully diluted share, compared to 2007 third quarter net income of $66.8 million, or $1.05 per fully diluted share.
The Bermuda-based specialty insurer and reinsurer cited the "unusually difficult investment environment" as a primary reason for the results.
The company reported a net operating loss of $146.1 million, compared to net operating income of $68.4 million a year ago.
Net premiums written for the quarter were $110.2 million, compared to 2007 third quarter net premiums written of $173.3 million. Net premiums earned fell from $177.6 in last year's third quarter to 2008 third quarter net premiums earned of $141.6 million.
The 2008 third quarter combined ratio was 99. Bermuda/Dublin insurance and reinsurance business came in under 100, at 94 and 94.8 respectively. U.S. specialty insurance was unprofitable at 142.7.
The company reported $45.3 million in net investment income for the quarter, down from $49.7 million a year ago. Net losses on alternative investments were $158.8 million, compared to net gains of $14.5 million a year ago.
For the nine months ended September 30, 2008, Max Capital reported a net loss of $81.2 million, or $1.35 per diluted share, compared to a 2007 net income of $240.9 million, or $3.77 per diluted share for the same time period.
W. Marston Becker, chairman and chief executive officer of Max Capital, said in a statement, "Max's continued solid underwriting performance has been overshadowed by the impact of an unusually difficult investment environment.
"Max's overall combined ratio remains ahead of plan for the year despite the soft market conditions and the occurrence of multiple cat events, with the improved underwriting performance primarily due to favorable development of prior period reserves."
Bank of America Equity Research noted that underwriting margins were "significantly better than expected" for Max Capital.
Speaking to the weak alternative asset performance, Bank of America said, "We believe hedge fund returns will be negative in October too. Max announced last month that it will make strategic changes to lower its alternative asset allocation to closer to 15 percent of investments from its prior allocation of 20 percent."
Bank of America also noted that the company said it will "also increase focus on less volatile investment strategies. We view this as a positive as it should reduce earnings and book value volatility."
Speaking to the possible onset of a hard market, Mr. Becker said in a conference call that all indications support a market hardening with shorter tail lines leading the way. He noted that some competitors are still pricing low, but said the prices are not sustainable, and suggested that they may draw the scrutiny of regulators.
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