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Alterra Capital Holdings Limited. (ALTE)

Q3 2010 Earnings Call

November 03, 2010 05:00 am ET

Executives

Susan Spivak - SVP, IR

John Berger - Vice Chairman of the Board & CEO, Reinsurance

Joe Roberts - EVP & CFO

Analysts

Josh Shanker - Deutsche Bank

Jay Cohen - Bank of America Merrill Lynch

Dan Farrell - Stern Agee

Mark Dwelle - RBC Capital Markets

Jay Cohen - Bank of America Merrill Lynch

Presentation

Operator

Good day ladies and gentlemen and welcome to the third quarter 2010 Alterra Capital Holdings Limited earnings conference call. My name is Brandy, and I will be your operator for today. At this time all attendees are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder this conference call is being recorded for replay purposes.

I’ll turn the call over to your host for today, Ms. Susan Spivak, Senior Vice President, Investor Relations. Please proceed, ma’am.

Susan Spivak

Thank you. Good morning and welcome to Alterra's third quarter 2010 earnings conference call. Last night we issued our press release and financial supplement, both of which are available on our website www.alterracap.com.

Joining us for today’s call will be Marty Becker, President and Chief Executive Officer; John Berger, Vice Chairman and CEO of Reinsurance Operations; and Joe Roberts, Chief Financial Officer. Following the prepared remarks, we’ll open it up to questions and answers.

Before proceeding with the discussion Alterra reminds you that this call may include forward looking statements that reflect its current views with respect to future events and financial performance. Statements that include words such as expect, intend, plan, believe, project, anticipate, will, may and similar statements of a forward-looking nature identify forward-looking statements. All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause actual results to differ materially from those indicated in such statements, and you should not place undue reliance on any such statements. Any forward-looking statements made in this call are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by Alterra will be realized or even substantially realized that they will have the expected consequences or effect on Alterra or its businesses or operations.

Alterra undertakes no obligation to update publicly or revise any forward-looking statement whether as a result of new information, future developments or otherwise. With that, I’ll now turn the call over to Marty.

Marty Becker

Thank you Susan and good morning, and welcome everyone to our third quarter call, which is our first full quarter as Alterra, with global specialty insurance and reinsurance enterprise formed last May by the merger of Max Capital and Harbor Point.

Alterra had a very solid quarter and we believe that the integration from the merger of Harbor Point Max is largely complete. On a pro forma basis, our gross premiums written were down from a year ago principally due to our continued underwriting discipline in the face of a softening market and a related trend among primary companies to retain a greater share of business in our reinsurance segment. Our balance sheet is very strong and we expect to be well positioned to respond to market changes as they arrive.

Post merger, Alterra has less leveraged in both assets and reserves to equity. Our recent public tenure senior note offering added some financial leverage and flexibility to our balance sheet and our debt-to-equity ratio remains below our peer group average.

For the third quarter of 2010, our reported net operating income was 76 million or $0.64 per diluted share compared to net operating income of 53 million or $0.92 per diluted share last year. Fully diluted book value per share was $25.88 up 5.4% for the quarter with booked value growth of 7.4% if you include our held the maturity asset portfolio.

On a reported basis, our overall property and cash, the gross premiums grew 21.9% in the third quarter to 324 million. However on a pro forma basis, including Harbor Point premiums in 2009, our overall property and cash the gross premiums written were down 15% for the quarter and 6% year-to-date. Our insurance segment produced lower premium in 2010 and then in 2009 reflecting the continued competitive market conditions. Our excess liability, professional lines and aviation premium have declined both in the quarter and year-to-date.

Property lines premium was modestly higher. Rates remained under pressure with declines of between 3 to 5% in our excess liability class on business we renewed and professional lines D&O rate decreases have accelerated to near 10% while E&O and EPL rates are showing positive momentum and are now modestly up. Property rates on the other hand have effectively reversed the increases of 2009 and in the third quarter were off close to 15%. Aviation rate declines range from 6 to 8% with aerospace on the high end.

We believe we have effectively protected our underwriting margins even as the top line has declined. All four of our property and casualty underwriting segments produced favorable underwriting results with a consolidated third quarter combined ratio of 86% and it was even 97% excluding reserve releases. We are somewhat surprised as the seeming complacency in our industry at the moment regarding price, present market pricing combined with historically low investment yields will make earning a true double digit ROE extremely challenging and traditional 15% ROE targets unrealistic, absent an unusually fortuitous last year.

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