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Max, Harbor Point merger fuels consolidation talk


HAMILTON, Bermuda—The merger of Max Capital Group Ltd. and Harbor Point Ltd. will result in a more diverse, financially stronger company with an improved competitive position, particularly in reinsurance, observers say.

The deal also could fuel further consolidation in the Bermuda market, some observers say.

The combined entity, which will be renamed Alterra Capital Holdings Ltd., will have shareholder equity of approximately $3 billion, the firms said.

Under terms of last week's all-stock transaction, already approved by both companies' boards of directors, Harbor Point shareholders will receive 3.37769 of Max common share for each Harbor Point share. After the merger, Harbor Point shareholders will own approximately 52% of the combined company, with Max Capital shareholders owning approximately 48%. The companies described the deal as a “merger of equals.”

The combined company will trade on the NASDAQ stock exchange.

“We're very excited about our future prospects, and we truly feel this is a winning combination,” W. Marston Becker, chairman and CEO of Max Capital, said during a conference call. After the transaction is complete, Mr. Becker will be president and CEO of Alterra and serve as a director.

John R. Berger, director, president and CEO of privately held Harbor Point, will be CEO of reinsurance of Alterra and vice chairman of the board of directors.

The deal came after Max Capital's bid last year for Bermuda-based IPC Holdings Ltd. was derailed by Validus Holdings Ltd. after a long bidding war—raising speculation that it may seek another merger partner.

Observers say the transaction is largely favorable and would create a more diversified, multiline reinsurer and insurer. In addition, the combined company is expected to have little overlap in lines of business, which makes it a complementary transaction, analysts said.

Max Capital, founded in 1999, is a specialty insurer and reinsurer that has been diversifying its underwriting risk portfolio while reducing asset exposures. It underwrites excess liability, professional liability, property and aviation coverage primarily for Fortune 1000 companies, as well as property/casualty and excess-of-loss and quota-share specialty reinsurance.

Max Capital has platforms in Bermuda, Ireland, the United States and Lloyd's of London, and it recently established a Latin America reinsurance operation. Max Capital reported $1.37 billion in gross written premiums in 2009 with a market capitalization of $1.34 billion, according to NASDAQ.

Harbor Point, founded in 2005 by a group of investors led by Chubb Corp. and private equity firm Stone Point Capital L.L.C. from the spinoff of Chubb Re, underwrites property/casualty and specialty reinsurance. Harbor Point wrote approximately $607.5 million of gross written premiums in 2009 with shareholders' equity of $1.89 billion at year-end.

“Max's reinsurance business is solid and complementary to that of Harbor Point,” Mr. Berger said during the conference call. “Max's focus has typically been on the smaller, more targeted specialty cedents, which will fit well with Harbor Point's larger-account client base.”

Gaining access to Max's primary business and Lloyd's platform is a “unique opportunity,” said Mr. Berger, who added that the firms have “similar underwriting cultures.”

After the combination, Alterra is expected to write approximately 50% long-tail and 50% short-tail business, the firms said.

“We don't expect them to do anything too aggressively at first, given the soft market conditions. However, when things start to improve, they will be able to use their added financial strength to retain and reinsure more business,” said Gretchen Roetzer, director of Fitch Ratings Inc. in Chicago.

The stronger balance sheet will offer buyers “improved security,” said Paddy Jago, New York-based CEO of U.S. operations of Willis Re Inc., a reinsurance unit of Willis Group Holdings P.L.C.

Neither Standard & Poor's Corp. nor Fitch Ratings issued downgrades because of the deal, but both said “integration risk” is a concern. A.M. Best Co. Inc. put Max Capital's A- rating under review with positive implications.

New York-based S&P said the combination will significantly boost “the merged group's market presence in the reinsurance sector, strengthening its competitive position.”

Several observers said the deal could spur more consolidation as Bermuda firms look to gain scale through mergers. “The capital markets and the equity markets are opening up a bit and I think consolidation (in Bermuda) is inevitable,” Ms. Roetzer said.