In a joint announcement this morning, two Bermuda companies–Max Capital Group and IPC Holdings–said they have agreed to join together, with the boards of both companies unanimously having approved an “amalgamation agreement.”

“This is not a transaction about expense savings, but [one] about growth and long-term value creation for our collective shareholders,” said W. Marston Becker, chairman and chief executive officer of Max Capital, a specialty insurance and reinsurance company created in 2002, during a conference call this morning.

IPC President and CEO James Bryce, explaining one impetus of the deal from the perspective of his company–a monoline property-catastrophe reinsurer that has been in existence for more than 16 years–said that after a trio of hurricanes in 2005 (Katrina, Rita, and Wilma), “it became apparent…that the monoline business model would make it difficult to build and sustain value for [IPC] shareholders over the long term.”

Seeking ways to adjust the IPC business model and reduce earnings volatility led to the search for a partner with a similar underwriting culture–one focused on underwriting profits rather than top-line growth, Mr. Bryce said.

In today's announcement, the companies said terms of the definitive amalgamation agreement call for holders of Max common stock to receive 0.6429 IPC shares for each Max share.

Friday's IPC closing stock price was $25.41 per shares, which puts the deal value at over $900 million for the more than 56 million outstanding Max shares.

Upon closing of the tax-free, stock-for-stock merger, IPC shareholders will own approximately 58 percent of the combined company, with Max shareholders owning approximately 42 percent.

Completion of the transaction is contingent upon customary closing conditions, including the approvals of shareholders and various regulatory approvals and notices.

The transaction is expected to close in the third quarter of 2009.

From a financial perspective, based on results at Dec. 31, 2008, the deal creates a company, with shareholders' equity of over $3 billion and total assets of approximately $10 billion.

“We believe the new entity will be meaningfully overcapitalized on Day 1,” Mr. Becker said, later putting an estimate of excess capital in the $300-$400 million range. “While in normal times, we might be inclined to adjust this at closing, in the present economic environment, we believe this anticipated overcapitalization will be a competitive strength,” he said.

Max Capital was originally launched as Max Re in 2000 with a model focused on writing finite casualty reinsurance contracts. A few years later, post-9/11 price hikes and increased buyer appetite for more traditional risk-transfer products prompted the company to grow a more traditional casualty reinsurance book.

Two years later, the company also started writing insurance, targeting areas where it said it could offer solutions to clients facing market challenges–subsequently growing the insurance book in lines like medical malpractice, product and professional liability, and then launching an aviation unit in Dublin.

While still more concentrated on long-tail casualty, after four hurricanes in 2004, Max Re executives in place at the time set out to take advantage of an improving property market and started slowly building a property treaty reinsurance practice–accelerating the strategy after Hurricane Katrina.

In mid-December 2006, Max Re announced its plan to launch a new U.S. E&S subsidiary–Max Specialty Insurance Company. And in July last year, Max Capital announced it would put up over $200 million (roughly $22 million in cash and replacing letters of credit totaling $179 million) to acquire Imagine Group (UK) Limited, a Lloyd's insurance operation, which was rebranded as “Max Lloyd's Ltd.”

With all the changes, the company has created a global platform with facilities in Bermuda, Dublin, at Lloyd's and in six major U.S. cities.

IPC Re, created in the wake of Hurricane Andrew in 1993, has since diversified its operations globally as well, and today has a reinsurance portfolio what is spread evenly between clients domiciled in North America and those located elsewhere in the world–principally in the UK, Continental Europe, the Far East and Australasia.

Upon closing of the amalgamation agreement, the IPC holding company will be renamed from IPC Holdings Ltd. to Max Capital Group Ltd. The combined company, Max Capital Group, will serve as the Bermuda-based holding company for the existing global specialty insurance and reinsurance operating subsidiaries of Max and for IPCRe Limited, the existing Bermuda-based property-catastrophe reinsurance subsidiary of IPC.

IPCRe Limited will be renamed Max IPC Re Ltd.

Mr. Becker will be the president and CEO of Max Capital Group when the deal closes, while Mr. Bryce will commence a long contemplated retirement from his executive position as of June 30, 2009. Mr. Bryce, however, will continue in a non-executive role as chairman of Max IPC Re and will be active in client relations and marketing.

The executives said that retention programs have been put in place to retain the majority of the people currently employed by IPC. “For this combined entity to have a very nice role for each of [those] 32 employees is not at all challenging,” Mr. Becker said.

Max Capital currently has more than 300 employees worldwide.

(Susanne Sclafane can be reached at Ssclafane@nuco.com, 201 526-1246.)

Special Reports /

IPC Combining With Max Capital In Stock Deal

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