Max Capital, Harbor Point to Merge and Form New Company Called Alterra

The proposed stock merger of Bermuda reinsurers and specialty insurers Max Capital Group Ltd. and Harbor Point Ltd. is a "merger of equals," that will make the combined company, to be called Alterra Capital Holdings Ltd., stronger than either of the individual companies, said the united company's top executive.

"We are bringing together two strong and complementary organizations that are doing well individually and have robust balance sheets. We will create a more diversified and balanced global company with much greater scale, capital, financial strength and expertise," W. Marston (Marty) Becker, chairman and chief executive officer of Max, said in a conference call on the morning of March 4.

"One plus one will equal more than two," said Becker, who will become Alterra's president and CEO. He said Alterra means "high ground."

Max Capital Group was originally formed as Maximus Capital Holdings Ltd. in 1999. Harbor Point, a privately held company, was the largest of the so-called Bermuda Class of 2005, several companies that were formed to take advantage of the hardening market after Hurricane Katrina.

Harbor Point was a spin-off of Chubb Re, and got off the ground in part by acquiring the business and renewal rights to Chubb Re's in force book of assumed reinsurance business.

Alterra, the combined Max-Harbor Point entity, would have about $3 billion in common equity.

Under the terms of the merger agreement, Harbor Point stockholders will each receive 3.7769 Max shares for each Harbor Point share they own. Also, the board of directors of the combined company is intending to declare a special cash dividend of $2.50 a share, a total of about $300 million, for all shareholders after the deal closes.

After the merger, Harbor Point shareholders will own about 52% of the combined company, with Max shareholders will own about 48%.

John R. Berger, director, CEO and president of Harbor Point will be Alterra's CEO of reinsurance and vice chairman of the board. Berger will also chair the board's underwriting committee.

Michael O'Reilly, chairman of Harbor Point's board of directors and former vice chairman and chief financial officer of the Chubb Corp., will be the nonexecutive chairman of Alterra's board. The board of directors of Alterra will consist of 14 directors, including Becker and Berger, in addition to six directors appointed by each of Max and Harbor Point.

The transaction is pending customary closing conditions, including the approvals of shareholders and regulatory approvals and notices, and is expected to close in the second quarter of 2010.

The combined company will have a 50/50 split on long-tail and short-tail lines, the companies said.

This is the second recent attempt for Max to undertake a major merger or acquisition. Last year, the company announced plans to merge with IPC Re, but a rival Bermuda reinsurer, Validus Holdings Ltd., stepped in with an unsolicited counteroffer, ultimately successfully merging with IPC instead of Max.

But earlier this year, Becker told BestWire that the failed merger attempt with IPC had raised Max's profile (BestWire, Jan. 25, 2010).

Major shareholders and founders of both companies have already agreed to the merger, the companies said.

The operating subsidiaries of Max Capital Group (NASDAQ: MXGL) currently have a Best's Financial Strength Rating of A- (Excellent), which are under review with positive implications following the Harbor Point merger announcement.

Harbor Point's Best's Financial Strength ratings of A (Excellent) are unaffected by the merger announcement (BestWire, March 4, 2010).

Shares of Max were trading at $23.70 a share on the morning of March 4, down 2.35% from the previous close.

(By Meg Green, senior associate editor, BestWeek: [email protected])