A.M. Best Co. has placed the "A" financial strength ratings of the reinsurance subsidiaries of IPC Holdings under review with negative implications, following yesterday's announcement of IPC's intent to merge with Max Capital Group Ltd.

The subsidiaries impacted by the rating action are IPCRe Limited (Bermuda) and IPCRe Europe Limited (Dublin, Ireland).

The "A-minus" Best rating of Max Capital's lead operating company, Max Bermuda Ltd. (Hamilton, Bermuda), is unchanged, the Oldwick, N.J.-based rating agency said in a statement released today.

Explaining the "under review" status of IPCRe, Best said the IPC-Max combination will be largely influenced by Max from a multitude of perspectives, including premium volume, liabilities, operating platforms and information technology systems.

Best noted that IPCRe's property-catastrophe business will make up only a moderate portion of the combined diversified specialty insurance and reinsurance company, and that property-catastrophe exposures will have to be aggregated and analyzed for correlations. In addition, office space, IT and corporate cultures have to be integrated, Best said.

While the deal brings immediate size and scale and a strong capital base, according to the Best analysis, "unlocking the value" of additional benefits "and driving the sustainable edge will only be realized over the longer term," Best said.

IPC did better from a profit standpoint than Max--and than most other Bermuda companies in 2008, posting $90.4 million in net income and a combined ratio of 56.4, the best of any Bermuda company tracked by National Underwriter (using information from Highline Data). Max Capital, which reported a 91.9 combined ratio for 2008, also reported a bottom-line net loss of $175.3 million fueled by $233 million in losses on alternative investments.

Just after yesterday's deal announcement, Moody's Investors Service issued a statement highlighting the investment losses, citing the pressure on capital adequacy and financial flexibility that the investments had caused as one reason for keeping a negative outlook on Max Capital's "A3" financial strength rating.

Moody's affirmed the rating, pointing to a now-enhanced business profile for Max in the property-catastrophe arena from the IPC deal, a capital base now commensurate with Bermuda peers, lower consolidated debt as percentage of capital and better overall asset quality relative to total capital.

Separately, S&P affirmed IPC's "A-minus" rating with a stable outlook, noting decreased earnings and capital volatility as of the consolidated entity among factors driving the ratings statement.

Special Reports /

IPC Under Review By A.M. Best After Max Merger Announcement

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