S&P Comments on Validus, IPC Holdings, Max Capital Ratings

April 2, 2009

As indicated in the previous article, Validus Holdings has made an unsolicited offer to combine with IPC Holdings Ltd. in response to the Agreement and Plan of Amalgamation between IPC and Max Capital Group Ltd.

Standard & Poor’s Ratings Services reacted with the following comment: “Although we will not be taking any rating action on any of these companies as a result of this announcement, we will continue to monitor any developments as they relate to the ratings.”

In analyzing the companies’ ratings, S&P said “The ratings on Validus are based on its good competitive position, having leveraged its first-mover advantage after Hurricane Katrina by providing capacity to the market. It also increased its footprint, diversification, and scope following the acquisition of Talbot Holdings Ltd.

“Since its inception, Validus has had strong capitalization’ strong risk controls around exposure management, underwriting, and modeling; and very strong operating performance.

“Partially offsetting these strengths are the group’s strategic risk management practices, which are only adequate; the possibility of significant earnings volatility because of its short-tail focus and catastrophe exposure (though the mix of business provided by the Talbot acquisition mitigates this); and some remaining integration and execution risks associated with the acquisition of Talbot.”

S&P added that “following the announcement of the merger agreement, pending shareholder voting, between Max and IPC on March 2, 2009, it had affirmed its ratings on IPC and placed its ‘BBB-‘ counterparty credit rating on Max Capital Group Ltd. on CreditWatch with positive implications.

“We believe this merger of Max with IPC is positive to the rating on Max,” said S&P. “The transaction is a stock-for-stock merger, with the new company becoming the combination of IPC and Max. Although some overlap exists between the two companies in terms of employees, property catastrophe exposures, and investments, the post-merger company will basically be the combination of two relatively intact stand-alone entities.”

“The merger is not driven by expense savings but rather by the creation of a larger and well-capitalized company, with a more diversified book of business (mainly through IPC’s international presence and Max’s diversified business lines) and reduced earnings/capital volatility.”

Source: Standard & Poor’s – www.standardandpoors.com

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