NU Online News Service, July 7, 11:38 a.m.EDT

An executive involved in the bidding war for IPC holdings saidafter that battle ends the merger and acquisition landscape willlikely heat up further in Bermuda.

Mark Byrne, chair of Flagstone Reinsurance Holdings, made hiscomments during a conference call to detail the benefits of theproposed $1.8 billion deal his firm proposed last Wednesday.

He speculated that yesterday's announcement that Partner Re isacquiring Paris Re for $2 billion and the contest for IPC'sproperty-catastrophe reinsurance operation, IPC Re, may not be thelast reinsurance deals in the works.

He reasoned that boards of directors need to pay attention totheir responsibilities to provide value to shareholders.

Besides Flagstone's offer of a part stock-part cash deal,there's at least one other rival proposal for IPC's board (andultimately its shareholders) to consider--a $1.6 billion offer fromValidus Holdings that already trounced a proposal for a $900million merger deal for IPC from Max Capital.

The Max-IPC deal, previously blessed by IPC's board, was voteddown by IPC shareholders in June.

"Does the M&A environment get frenzied if someone makes this[IPC] deal happen?" an analyst asked Mr. Byrne. With news ofPartner Re's acquisition fresh off the wires, "do you think themarkets are heating up for M&A immediately after theconsummation of the deal with IPC regardless of who the winneris?"

Mr. Byrne responded: "My speculative answer would be yes. Ithink there has been a general feeling, particularly in thecommunity in Bermuda [and] also among some of the Europeancompanies for the last year or so, that there are more companiesthan there are distinct strategies and that there should be somecombination."

He continued, "I haven't overall been impressed with attentionto corporate governance by some companies." Describing his own firmas having "extraordinarily shareholder-friendly management," hesaid, "I think a little bit of stirring the pot and boards beingreminded of what their obligations are in terms of producingshareholder value is a positive thing."

Mr. Byrne said he does not, however, expect to see a lot moredeals happen in the catastrophe reinsurance arena this summer sincelow-probability but potential catastrophe events can play out toimpact deal terms. In the case of the Flagstone-IPC proposal, henoted that Flagstone "accepted a mutually agreed amalgamationagreement with IPC [that] does not provide for a material adversechange...over a natural catastrophe."

Asked if Flagstone needs to pursue another deal should the IPCdeal fall through, Mr. Byrne said it does not.

"We were happy individuals before we made this offer," he said,noting that it is currently filling the gap between reinsurancebusiness opportunities and the level of capital Flagstone has tosupport business writings by buying a little bit moreretrocessional coverage to manage exposure.

"We're not in the need-to-do-a-deal category," he said. Instead,"we feel that as management, it's our obligation to review everyopportunity that exists."

"That's good governance. That's what a chairman is supposed todo," he said. "We looked at dozens of things before we decided tomake an offer on this one."

Asked about the history of contacts between IPC and Flagstone,Mr. Byrne revealed that Flagstone was actually contacted by IPC'sadvisors last fall as they evaluated potential partners forIPC.

"We indicated an interest and, for reasons not known to us, werenot selected into their final three [bidders]. In fact, we don'tknow who the other two were besides Max," Mr. Byrne reported.

He said the dialogue between the companies was reopened aboutthree weeks ago, when Flagstone sent a letter of intent to IPC'sboard, following up with phone calls, in-person meetings and then asix-day due diligence process that allowed for a review ofreserves, investments and even an opportunity for Flagstone'sactuary to model IPC risks in its own portfolio managementsystem.

Asked by an analyst why Flagstone didn't pursue a match with a"larger, more diversified insurance and reinsurance organization,"Mr. Byrne noted, among other things, that IPC is already 50 percentbigger than Flagstone.

He also said Flagstone viewed the deal as a clean, simple one,since Flagstone is already familiar with 70 percent of clients. "Weknew [them] by first-name basis," he said.

"At least at this moment, we don't have an appetite for a bigU.S. casualty presence," he added, suggesting that other potentialpartners have existing U.S. casualty books. While he said he wouldnot rule out the prospect of adding U.S. casualty forever, "wedon't think it's the right move for the fall of 2009."

Highlighting one unique benefit that sets Flagstone apart fromrival suitor Validus and other potential acquirers, Mr. Byrne saidIPC shareholders will benefit from Flagstone's Swiss operatingplatform, noting that Flagstone moved to consolidate its principaloperations and capital base to Switzerland in the fall of 2008.

"That's a move you've seen copied by others," he said, addingthat "the Swiss regulator is [now] deluged with applications."

"There's a great deal of pressure on Bermuda and other countriesperceived to be tax havens from the G-20, the OECD [Organizationfor Economic Cooperation and Development] and the Obamaadministration. We believe we're in a much safer position," hesaid.

When an analyst countered to suggest that there are billsfloating around in Congress that seem to "address Switzerlandspecifically and not Bermuda," Mr. Byrne said he was not aware ofthem.

"The United States and Switzerland have a long-standing taxtreaty that is not easily changed unilaterally from the floor ofthe Senate, and no bill has come to our attention that targetsSwitzerland," he said.