Max Capital Publishes Prelim Losses: Will 2010 Be Bad for Insurers?

Mar.23.10 | About: Max Capital (MXGL)

Last week, Max Capital Group Ltd. (MXGL) announced its preliminary loss estimates from the 8.8 magnitude earthquake in Chile, European Windstorm Xynthia and the Australian hailstorms.

Max Capital expects to incur combined pre-tax net losses of $10 million to $20 million from the earthquake in Chile and Xynthia windstorm. The estimates of Max Capital are net of reinstatement premiums.

Like other insurers, Max had a hard catastrophe year in 2008 while 2009 came as a respite, which affected the company’s underwriting income favorably. However, experts say that 2010 could be a different story. The catastrophe losses early during the year are expected to drain the company’s first quarter 2010 earnings.

Estimate Revisions

Over the last 30 days as well as last 7 days, the stock of Max Capital has not experienced any estimate revisions for the first quarter 2010 from the 5 analysts covering the stock. Currently, the Zacks Consensus Estimate for the first quarter is operating profit of 71 cents per share, which would be down by 4.65% from the year-ago quarter.

The absence of any estimate revisions for the first quarter indicates a lack of any clear directional pressure on the performance of the stock in the near term.

With respect to earnings surprises, the stock has been almost steady over the last four quarters, with all positive surprises. The average remained positive at 9.11%, implying that Max has surpassed the Zacks Consensus Estimate by 9.11% over that period.

The downside potential for the estimate for the first quarter, essentially a proxy for future earnings surprises, currently stands at 12.7% for Max.

Peer AXIS Capital Holdings Limited (NYSE:AXS) also announced that it expects to incur net losses of $60 million to $125 million for the earthquake. In addition, AXIS Capital’s initial estimate of losses from the European Windstorm Xynthia ranges between $10 million and $20 million.

The net loss estimates are provided on a pre-tax basis and net of reinstatement premiums. Max Capital and AXIS Capital thus join other reinsurers such as Everest Re Group Ltd. (NYSE:RE) and PartnerRe Ltd. (NYSE:PRE), who have also provided their preliminary loss estimates from these catastrophes.

Everest Re expects to incur $225 million of losses for the earthquake in Chile and around $25 million from the European Windstorm Xynthia. Everest Re’s loss estimates are net of tax and reinstatement premiums.

PartnerRe also expects initial claims related to the earthquake in Chile to be around $220 million to $320 million on a pre-tax basis. Claims relating to Windstorm Xynthia are expected to be between $40−$70 million, pre-tax. PartnerRe’s loss estimates