Max Capital and Harbor Point to merge

Max Capital and Harbor Point have approved a definitive amalgamation agreement.

The two boards of the Bermuda-based companies unanimously agreed the deal, which they are calling a 'merger of equals' to provide greater scale and financial strength.

The combined company will be renamed and rebranded as Alterra Capital Holdings Limited.

Completion of the Max-Harbor Point transaction is contingent upon customary closing conditions, including the approvals of shareholders and regulatory approvals and notices, and is expected to close in the second quarter of 2010.

Following the close of the transaction, Marty Becker, chairman and chief executive officer of Max will be president and chief executive officer of Alterra and serve as a director.

John Berger, chief executive officer and president of Harbor Point will be CEO of reinsurance at Alterra and vice chairman of the board of directors. Berger will also chair the board's underwriting committee.

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

The merger follows the unsuccessful attempt by Max to take over IPC, which was eventually bought by rival Validus in 2009. Max and Harbor Point had each been the subject of regular merger speculation. Other merger candidates remain, including Montpelier, Flagstone, Aspen, Ariel Re, Platinum and now Endurance, which has received heavy encouragement from a leading shareholder to find a merger partner.

Marty Becker said: "The Max - Harbor Point transaction is a true merger of equals and brings together two strong and vibrant organizations with good balance at both the Board and senior management level, and robust balance sheets to create Alterra Capital Holdings Limited, a diversified and balanced global insurance company with much greater scale, capital, and financial strength. We have chosen Alterra, ‘high ground,’ as our new brand name, as we believe the company will be a provider of superior security for our clients - a market leader at the pinnacle of our industry. With capital of approximately $3 billion, in a market that values strength and size as a sign of franchise safety and sustainability, Alterra will be well positioned to take full advantage of profitable growth opportunities in the P&C insurance and reinsurance markets. Harbor Point brings significant intellectual capital to Alterra with a highly experienced, very well-regarded reinsurance team that writes complementary lines to Max. Success in our business is built on talented underwriters. The core of this team has a 25-year track record of profitably navigating through all phases of the underwriting cycle. I have known John Berger for years, have admired his track record, and look forward to having him as my partner in building this great company."

Berger said: "Alterra will benefit from an exceptionally strong combination of global underwriting platforms with limited operating overlap, and outstanding management and underwriting teams. There are very few companies of Max's size that have the diversification and global reach it enjoys. The combination of our companies will produce a highly diverse portfolio of specialty insurance and reinsurance business, including a mix of long and short-tail lines. As a result, we expect that Alterra will have less volatile underwriting results than either of its individual components, as well as more flexibility to efficiently manage capital. I have done business with Marty over a long time, most recently, as a reinsurer of Max's insurance business. I respect what Marty and his team have built at Max and look forward to successfully growing the combined company."

O'Reilly said, "We believe this transaction will continue to build value for the shareholders of Harbor Point and Max. Max and Harbor Point are a compelling strategic fit, with Max adding primary insurance underwriting and multiple operating platforms to Harbor Point's deep expertise in the reinsurance market. The companies have similar underwriting cultures and an opportunistic approach to the markets."

After the consummation of the merger, Alterra Capital will trade on the NASDAQ Global Select market under the symbol ALTE.

The brand name Alterra is expected to be rolled out to all former Max and Harbor Point interests including Max at Lloyd's - the web domain name alterraatlloyds.com has been registered by Max Re.

In 2009, Max Capital reported shareholders equity had increased by 22% to $1.56bn. Harbor Point reported shareholders equity of $1.9bn in 2009.

Under the terms of the definitive amalgamation agreement, holders of Harbor Point common stock will each receive a fixed exchange ratio of 3.7769 Max common shares for each Harbor Point share.

In addition, both Max and Harbor Point intend for the board of directors of the combined company to declare a special cash dividend of $2.50 per share following closing to all shareholders of the combined company, to a total of approximately $300m.

Following the merger, Harbor Point shareholders will own approximately 52% of the combined company on a fully diluted basis, with Max shareholders owning approximately 48%.

Strategic and financial attributes of Alterra Capital Holdings Limited:

The combination of Max and Harbor Point is expected to create significant benefits for the shareholders of both companies, and to provide a firm foundation for strong financial performance going forward.

Capital base

Alterra is expected to have approximately $3bn in equity and minimal financial leverage, enhancing financial flexibility.

Expertise

The combination of Max and Harbor Point brings together seasoned and accomplished teams with limited overlap and with strong records of producing profitable business in diverse specialty insurance and reinsurance lines. The result is an extraordinary level of talent that should enable Alterra to perform well through market cycles.

Global platform and diversified business

Major operating platforms in Bermuda, Europe, the US, Latin America, and at Lloyd's are expected to write a balanced portfolio of insurance and reinsurance business. Max and Harbor Point each have significant exposure to both long-tail and short-tail lines, and, after the combination, Alterra is expected to write approximately 50% long-tail and 50% short-tail business.

Organisational structure and major shareholders

Alterra will serve as the Bermuda-based holding company for the existing global specialty insurance and reinsurance operating subsidiaries of Max and Harbor Point following closing. Upon closing or as soon as practicable thereafter, these entities will be rebranded with the Alterra name. Going forward, it is anticipated that, with the exception of reinsurance written at Lloyd's, all the reinsurance business of the group will be written by Alterra Reinsurance Limited and Alterra Reinsurance USA Inc., formerly the Harbor Point reinsurance companies.

Moore Holdings LLC, and certain of its affiliates, the founders and largest shareholders of Max, and Trident III, L.P. and Trident III Professionals Fund, founders of Harbor Point, along with certain other Harbor Point shareholders, have agreed to vote in favour of the amalgamation.

BofA Merrill Lynch acted as financial advisor to Max, while Akin Gump Strauss Hauer & Feld LLP and Conyers Dill & Pearman acted as legal counsel. For Harbor Point, Willis Capital Markets & Advisory acted as financial advisor and Skadden, Arps, Slate, Meagher & Flom LLP and Appleby acted as legal counsel.