Max Re now plans to write a greater volume of traditional reinsurance and insurance. The change has been prompted by the improvement of insurance rates for traditional business in the aftermath of the September 11 tragedy. From the beginning, management has structured the company to be flexible, so that it is now able to readily adapt to market opportunities.
In its two and a half years, Max Re has written in excess of $1.7 billion in gross premiums and deposits, but the returns on its hedge-fund led investment portfolio have not met expectations.
"We are by no means abandoning our original strategy," said Robert J. Cooney, chief executive officer of Max Re. " By augmenting our existing business with traditional insurance and reinsurance, we look to take advantage of increasing underwriting returns, while the investment markets weather the current storm. This business mix will allow the company to gain strength from existing market conditions, while positioning itself for further growth when the investment markets resume a more conducive return pattern."
The move, which comes partially in response to client demand, allows Max Re to focus its efforts on three key areas:
· Structured business, comprising financial reinsurance products, the primary goal of which is to maximize spread through asset management;
· Alternative risk transfer products, structured so that the reinsurer assumes significant risk transfer, while limiting its ultimate exposure through aggregate loss caps and occurrence limits; and
· Traditional risk transfer, the newest element in Max Re's varied program, which principally produces returns through the adequate pricing of insurance risk.
The company has begun to add staff with specialized experience and traditional underwriting skills to enable it to compete in the January 2003 renewal season, which is now getting under way.
"A key element of our strategy will be to avoid taking on open-ended risk," Mr. Cooney said. "The pricing for such risk is rarely adequate and, besides, the company has other, better-defined opportunities in its sights."
Mr. Cooney expects Max Re to partner with other companies when the need arises. The company has already made two significant investments in other reinsurers, a $50 million stake in DaVinci Re Holdings Ltd., a property catastrophe reinsurer managed by Renaissance Underwriting Managers Ltd. in Bermuda, and a 7.5% stake in Grand Central Re Ltd., a joint venture with Germany's HypoVereinsbank A.G., managed by Max Re.
"It has always been our belief that insurance and reinsurance companies need to be flexible, if they are to survive changing market conditions," Mr. Cooney said. "The insurance industry is replete with companies that stuck doggedly to under performing strategies, and failed to maximize the return to their shareholders as a result."