Fight for IPC Re Intensifies; Pirates Continue Attacks; Solvency II Gets EU OK

By | May 18, 2009

A good old-fashioned fight has developed between Bermuda-based Validus Holdings and the Max Capital Group over the latter’s planned amalgamation with IPC Re. At the end of March, Max announced that it had made a deal with IPC Re’s board of directors to take over the company.

Validus, however, saw things a bit differently. It launched an opposing plan, and when IPC and Max told the company to go away, it filed a lawsuit in the Supreme Court of Bermuda against IPC Holdings, IPC Ltd. and Max Capital, specifically challenging the “$50 million termination fee and ‘no-talk’ provision contained in the Agreement and Plan of Amalgamation between IPC and Max, dated as of March 1, 2009, as amended on March 5, 2009.”

Validus said it is “seeking among other things an injunction to restrain payment of the termination fee and to restrain operation of the “no-talk” provision on the bases that (1) because of its excessive size, the termination fee amounts to an unlawful penalty under Bermuda law and is accordingly unenforceable, and (2) entry into the Max Amalgamation Agreement, in circumstances where the agreement contained the termination fee and “no-talk” provision, constituted a breach of the directors’ fiduciary duties.”

In response, Max fired back that it would “vigorously defend the enforceability of the amalgamation agreement between IPC Holdings Ltd. and Max against the meritless lawsuit filed on April 28, 2009, by Validus Holdings.” Max Cap’s Chairman and CEO W. Marston Becker attacked Validus “hostile takeover attempts” and, in relation to the lawsuit, said: “We view this action as nothing more than another attempt by Validus to distract investors.”

On May 1, Validus fired back with a “three-part plan,” which consists of “(1) soliciting IPC shareholders to vote “against” the proposed Max Capital Group Ltd. (“Max”) amalgamation, (2) commencing an Exchange Offer for all IPC common shares and (3) petitioning the Supreme Court of Bermuda to approve a Scheme of Arrangement under Bermuda law.”

Both sides have characterized their respective offers as superior to the other. As 94 percent of IPC Re’s shares are held by institutional investors and mutual funds, they presumably have competent people who can decide who is offering the better deal. Proxy materials have been sent, and the shareholders meeting, scheduled for June 12 should determine who wins.

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Somali pirates continued to attack merchant shipping, despite increasing calls for a solution to the problem. Richard Phillips, the U.S. ship captain held hostage by Somali pirates, told Congress that arming some members of commercial ship crews could help beat back pirate attacks.

But shipping executive John Clancey opposed crews getting into an arms race with pirates on the high seas. Clancey is chairman of Maersk Inc., parent company of Maersk Line Ltd., whose ship — Phillips’ Maersk Alabama — was attacked on April 8.

Chief of Naval Operations Admiral Gary Roughead, as reported by Reuters, said after a Navy League conference: “Pirates don’t live at sea. They live ashore. They move their money ashore. You can’t have a discussion about eradicating piracy without having a discussion about the shore dimension.”

Admiral Roughead also noted that a combined sea and shore approach had helped curb pirate attacks in the Strait of Malacca between Malaysia and Indonesia. Piracy in the Strait, one of the world’s busiest shipping lanes, became so serious that in 2005 the Joint War Committee of the Lloyd’s Market Association added the area to its list of war risk zones, sending insurance premiums sharply higher. Concerted efforts by Malaysia, Indonesia and Singapore helped slash the number of attacks in that region.

Admiral Michael Mullen, chairman of the Joint Chiefs of Staff, told reporters after a speech at the Navy League conference that he did not support putting arms on commercial ships and that it was up to merchant ships to pay for their own protection.

A sampling of Lloyd’s marine experts more or less concluded that the pirate threat could be conclusively dealt with, only if Somalia eventually gets some kind of stable government, something that doesn’t look very likely.

The French Navy did find a novel way to thwart the pirates. They tricked three boatloads of would-be pirates into thinking that they were attacking a merchant ship, instead of a well-armed frigate — taking 11 of the marauders into custody in the process.

The Solvency II insurance regulations continued their progress toward adoption, as the European Union approved the latest version. Lloyd’s director and general counsel Sean McGovern stated: “We are pleased that the Solvency II Framework Directive has been adopted by the EU. This is key for modernizing insurance regulation in Europe and we are happy that we can continue with preparing for its implementation.” The rules are scheduled to be in place by 2012.

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Insurance Journal West May 18, 2009
May 18, 2009
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