Alterra Capital Reports Second Quarter 2012 Results

Net Operating Income of $0.68 per Diluted Share

Diluted Book Value per Share Growth including Dividends of 4.2%

HAMILTON, Bermuda--(BUSINESS WIRE)-- Alterra Capital Holdings Limited (NASDAQ: ALTE; BSX: ALTE.BH) (“Alterra”) today reported net income of $78.9 million, or $0.77 per diluted share, for the second quarter of 2012, compared to net income of $32.6 million, or $0.30 per diluted share, for the same quarter of 2011.

Net operating income for the second quarter of 2012 was $69.0 million, or $0.68 per diluted share, compared to net operating income of $39.6 million, or $0.37 per diluted share, for the same quarter of 2011. Annualized net operating return on average shareholders’ equity for the second quarter of 2012 was 9.7%.

For the six months ended June 30, 2012, Alterra reported net income of $158.0 million, or $1.54 per diluted share, compared to net loss of $14.1 million, or $0.13 per diluted share, for the same period of 2011. Net operating income for the six months ended June 30, 2012 was $136.7 million, or $1.33 per diluted share, compared to net operating income of $14.8 million, or $0.14 per diluted share, for the same period of 2011. Annualized net operating return on average shareholders’ equity for the six months ended June 30, 2012 was 9.6%.

W. Marston (Marty) Becker, President and Chief Executive Officer of Alterra, said: “We are pleased to report another solid quarter for Alterra. Despite a challenging market environment, we achieved an annualized net operating return on equity close to 10% for the quarter, while continuing to maintain a conservative philosophy on our newer product lines and teams. While we would prefer to see rates increasing at a faster pace, we are pleased that overall firming continues. Over the last twelve months, we have supplemented our 7.7% operating return on equity with significant share repurchases at a discount to diluted book value, contributing to a 12.5% increase in diluted book value per share, including dividends, since June 30, 2011. We expect to continue to use share repurchases as an important capital management tool for maximizing shareholder value until rate increases enable us to more effectively deploy any excess capital in our underwriting operations."

Second quarter 2012 results for Alterra include:

• Property and casualty gross premiums written of $565.8 million, representing an increase of $2.8 million, or 0.5%, compared to the same quarter of 2011;
• Net premiums written of $376.1 million, representing a decrease of $50.4 million, or 11.8%, compared to the same quarter of 2011. This decrease reflects increased property reinsurance premiums ceded in order to manage aggregate property exposures across all segments;
• A combined ratio on property and casualty business of 86.6%, compared to 93.7% for the same quarter of 2011;
• A nominal level of property catastrophe event net losses, compared to net losses of $49.6 million, net of reinstatement premiums, in the same quarter of 2011;
• Net favorable development on prior years’ loss reserves of $20.4 million, or 5.8 combined ratio points, compared to $48.5 million, or 13.9 combined ratio points, in the same quarter of 2011;
• Net investment income of $54.7 million, compared to $59.7 million in the same quarter of 2011, a decrease of 8.3%; and
• Income of $7.4 million from New Point Re IV Limited, a sidecar in which Alterra has an indirect 34.8% equity interest, consisting of fees and equity share earnings. Gross premiums written by New Point Re IV Limited were $4.1 million for the second quarter of 2012.

Gross premiums written and net premiums written from property and casualty underwriting for the second quarter of 2012 are shown in the following table, with the increase/decrease compared to the same quarter of 2011:

Results for the six months ended June 30, 2012 include:

• Property and casualty gross premiums written of $1,226.7 million, representing an increase of $36.3 million, or 3.0%, compared to the same period of 2011;
• Net premiums written of $812.5 million, representing a decrease of $104.0 million, or 11.3%, compared to the same period of 2011. This decrease reflects increased property reinsurance premiums ceded in order to manage aggregate property exposures across all segments, and a decrease in net premiums written on the contract binding business in the U.S. insurance segment resulting from the sale of the renewal rights for this business in 2011;
• A combined ratio on property and casualty business of 89.5%, compared to 103.5% for the same period of 2011;
• A nominal level of property catastrophe event net losses, compared to net losses of $155.8 million, net of reinstatement premiums, in the same period of 2011;
• Net favorable development on prior years’ loss reserves of $31.2 million, or 4.5 combined ratio points, compared to $78.7 million, or 10.8 combined ratio points, in the same period of 2011;
• Net investment income of $113.4 million, compared to $117.4 million in the same period of 2011, a decrease of 3.4%; and
• Income of $16.6 million from New Point Re IV Limited consisting of fees and equity share earnings. Gross premiums written by New Point Re IV Limited were $84.3 million for the first six months of 2012.

Gross premiums written and net premiums written from property and casualty underwriting for the six months ended June 30, 2012 are shown in the following table, with the increase/decrease compared to the same period of 2011:

Balance Sheet

Total invested assets, including cash and cash equivalents, were $7,886.0 million as of June 30, 2012, an increase of $71.2 million from December 31, 2011. As of June 30, 2012, 96.4% of the fixed maturities portfolio (by carrying value) was investment-grade, an increase from 94.4% as of December 31, 2011. As of June 30, 2012, the weighted average book yield of Alterra’s cash and fixed maturities portfolio was 3.26%, and the weighted average duration was 4.1 years.

Under a Board-approved share repurchase authorization, Alterra repurchased 3,639,100 common shares during the second quarter of 2012 at an average price of $22.70 per share for a total of $82.6 million. Share repurchases under the Board-approved share repurchase authorization for the six months ended June 30, 2012 were 5,704,977 common shares at an average price of $23.01 per share for a total of $131.3 million. As of June 30, 2012, $123.0 million remained under the Board-approved share repurchase authorization.

Shareholders’ equity was $2,851.7 million as of June 30, 2012, an increase of 1.5% from December 31, 2011. Diluted book value per share as of June 30, 2012 was $28.68. Including dividends declared, diluted book value per share growth for the second quarter of 2012 was 4.2%, and was 12.5% for the twelve months ended June 30, 2012. Not included in shareholders’ equity as of June 30, 2012 were $157.5 million of unrecognized gains on held-to-maturity securities, which represented $1.58 in unrecognized diluted book value per share.

Subsequent Event - Agriculture losses

Based on recent reports on U.S. current and expected crop conditions and crop prices and Alterra's geographical spread of risk, Alterra estimates a net underwriting loss for the third quarter of 2012 on its agriculture reinsurance business in the range of $15 million to $25 million, pretax and net of reinsurance. Actual losses may vary materially from this estimate due to the inherent uncertainties in making such determinations resulting from several factors, including but not limited to, the preliminary nature of available information and the potential inaccuracies and inadequacies in the data provided by clients and brokers.

A copy of Alterra’s second quarter financial supplement is available on Alterra’s website at www.alterracap.com.

Alterra will host a conference call on Wednesday, August 8, 2012 at 11:00 am (EDT) to discuss these results and related matters. The conference call can be accessed via telephone by dialing 1-888-680-0892 (toll-free U.S.) or 1-617-213-4858 (international) and using access code 27125669. A live broadcast of the conference call will also be available through Alterra’s website at www.alterracap.com.

Alterra Capital Holdings Limited is a global enterprise dedicated to providing diversified specialty insurance and reinsurance products to corporations, public entities and property and casualty insurers.

Non-GAAP Financial Measures

In presenting Alterra’s results, management has included and discussed net operating income, net operating income per diluted share, annualized net operating return on average shareholders’ equity and diluted tangible book value per share. These measures are “non-GAAP financial measures” as defined in Regulation G. Management believes that these non-GAAP financial measures, which may be defined differently by other companies, allow for a more complete understanding of Alterra’s business. These measures, however, should not be viewed as a substitute for measures determined in accordance with U.S. GAAP. The reconciliation of these measures to their respective most directly comparable U.S. GAAP financial measures is presented in the attached financial information in accordance with Regulation G.

Cautionary Note Regarding Forward-Looking Statements

This release includes forward-looking statements that reflect Alterra’s current views with respect to future events and financial performance. In particular, statements regarding future rate movements are forward looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those suggested by such statements. For further information regarding cautionary statements and factors affecting Alterra’s future results, please refer to the most recent reports on Form 10-K and Form 10-Q and other documents filed by Alterra with the SEC. Alterra undertakes no obligation to update or revise publicly any forward-looking statement whether as a result of new information, future developments or otherwise.

Segment Re-presentation

Effective January 1, 2012, the Company redefined its operating and reporting segments. Reinsurance business written within Latin America, which was previously reported within the reinsurance or Alterra at Lloyd’s segments, has been reclassified to a new Latin America segment. In addition, business written by the Company's recently incorporated Brazilian reinsurance company, Alterra Resseguradora do Brasil S.A. ("Alterra Brazil"), is included in the Latin America segment. Insurance business written by Alterra Insurance USA Inc., which was previously reported within the global insurance segment (formerly the insurance segment), has been reclassified to the U.S. insurance segment (formerly the U.S. specialty segment). Re-presented comparative financial information was filed on a Form 8-K on April 20, 2012.

[a] Net realized and unrealized (gains) losses on investments not included in operating income includes realized and unrealized (gains) losses on trading securities, realized (gains) losses on available for sale securities, net impairment losses recognized in earnings, earnings from equity method investments in run-off and changes in fair value of derivatives, catastrophe bonds and structured deposits.

Per share totals may not add due to rounding.

[b] Average shareholders equity is computed as the average of the quarterly average shareholders' equity balances.