Becker on top

Marty Becker is in fine form as he speaks to Reinsurance at a time when the battle raging between his company - Max Capital - and Bermudian rival Validus is heating up over IPC Holdings, writes Alexander Ferguson

One thing that Reinsurance has learned is that Max Capital CEO Marty Becker loves college football, particularly the University of West Virginia Mountaineers. "They're going to be good this year," he says, citing new quarterbacks, good recruiting and a stout defence. He sounds as though he cannot wait for September.

There is another date that Becker probably cannot wait for either: 12 June.

On 12 June, 2009 the shareholders of IPC will vote on a proposed merger with Max or sell out - for an admittedly higher price - to Validus. Becker would rather not talk about the verbal battle between Max and Validus, though he is keen to put Max's point forward about why they did the deal in the first place.

Becker says: "The combination of IPC and Max benefits both companies by creating a world-class specialty insurance and reinsurance company with a diversified global underwriting platform. True diversification is important in today's market and ratings agencies encourage it.

"Scale is also seen as beneficial and, after the merger, we expect to have over $3bn in capital, including $300-400m of excess, which should give us a significant competitive advantage."


Asked whether or not it was a shock when Validus threw its hat in the ring - in the process gazumping Max's all-share offer with its own bid that would offers shareholders an 18% premium to the company's share price backdated to 30 March - Becker offers a dry, understated response: "We were not surprised that someone raised their hand," then proceeds to reiterate his belief that the Max-IPC merger is the superior option.

Max has quite a track record of acquisition in the last few years. The biggest of these was the buyout of Imagine's Lloyd's Syndicate for £11m, giving the group a ready-made Lloyd's platform. The move paid immediate dividends: Max at Lloyd's wrote $44.1m of premium in the first three months of that particular year.

"Max has had tremendous success in the last two to three years on its US platform and Max at Lloyd's appears as if it will also be a real positive addition," Becker says. "I think that everyone will be happy with its progress."

Although Becker says that he is unlikely to bid for Lloyd's (re)insurer Chaucer - currently in talks with a number of parties about a takeover - he is likely to add teams.

He highlights: "We've said that the best path is adding teams instead of via acquisition. It's highly likely that we'll add teams at Lloyd's and in the US as the year progresses."

One of the biggest worries for the Bermudian market is HR6969, a US Senate Bill that, if passed, will close the hole on the related-party reinsurance that enables Bermuda-based insurance groups to cut their tax bills. Becker also wants a change to the law that allows US subsidiary-written premiums to be ceded to a Bermudian parent through means of a reinsurance contract, so allowing the tax bill on primary insurance to be reduced.

"All I can say is that the public relations around the Neal Bill is bigger than the Bill itself. The Association of Bermuda Insurers and Reinsurers did a survey of its members with the most significant US operations and it emerged that, between 2004 and 2006, those Bermuda companies were already paying an effective average US tax rate on their income related to US operations of approximately 28%. This is broadly similar to the tax US domestics pay after they take advantage of their tax-advantaged investments. There isn't a lot of difference and, although I think that there will be legislation, it won't take away from the advantages of working on the island."

Bright hope

The climate is looking more temperate for the (re)insurance industry for the first time in years. Becker remarks: "The investment climate was much more stable in the first quarter of 2009 than it was in the second quarter of last year," adding that "most parts of the reinsurance industry are seeing or expecting further rates increases across all lines."

Becker also expects rate increases at 1 July - the main period for Florida renewals: "Rates came up at 1 January and I anticipate they will rise further on 1 July, though just a bit."

However, by the time the increases are set at the 1 July renewals date, the shouting will be over about which of the opposing armies - Max or Validus - will assert their claim to IPC. This battle's Armistice Day is 12 June.

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