![]() B E R M U D A I R E L A N D U N I T E D S T A T E S LLOYD’S Creating a World Class Specialty Insurer and Reinsurer Investor Presentation May 12, 2009 Filed by IPC Holdings, Ltd. pursuant to Rule 425 under the Securities Act of 1933, as amended. Subject Company: Max Capital Group Ltd. (Commission File No.: 000-33047) |
![]() 2 INFORMATION CONCERNING FORWARD LOOKING STATEMENTS CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION This presentation includes statements about future economic performance, finances, expectations, plans and prospects of both IPC Holdings, Ltd. (“IPC”) and Max Capital Group Ltd. (“Max”) that constitute forward-looking statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to certain risks and uncertainties, including the risks described in the definitive joint proxy statement/prospectus of IPC and Max that has been filed with the Securities and Exchange Commission (“SEC”) under “Risk Factors,” many of which are difficult to predict and generally beyond the control of IPC and Max, that could cause actual results to differ materially from those expressed in or suggested by such statements. For further information regarding cautionary statements and factors affecting future results, please also refer to the most recent Annual Report on Form 10-K, Quarterly Reports on Form 10- Q filed subsequent to the Annual Report and other documents filed by each of IPC or Max, as the case may be, with the SEC. Neither IPC nor Max undertakes any obligation to update or revise publicly any forward-looking statement whether as a result of new information, future developments or otherwise. This presentation contains certain forward-looking statements within the meaning of the U.S. federal securities laws. Statements that are not historical facts, including statements about our beliefs, plans or expectations, are forward-looking statements. These statements are based on our current plans, estimates and expectations. Some forward-looking statements may be identified by our use of terms such as “believes,” “anticipates,” “intends,” “expects” and similar statements of a future or forward looking nature. In light of the inherent risks and uncertainties in all forward-looking statements, the inclusion of such statements in this presentation should not be considered as a representation by us or any other person that our objectives or plans will be achieved. A non-exclusive list of important factors that could cause actual results to differ materially from those in such forward-looking statements includes the following: (a) the occurrence of natural or man-made catastrophic events with a frequency or severity exceeding our expectations; (b) the adequacy of our loss reserves and the need to adjust such reserves as claims develop over time; (c) any lowering or loss of financial ratings of any wholly-owned operating subsidiary; (d) the effect of competition on market trends and pricing; (e) changes in general economic conditions, including changes in interest rates and/or equity values in the United States of America and elsewhere and continued instability in global credit markets; and (f) other factors set forth in the definitive joint proxy statement/prospectus of IPC and Max, the most recent reports on Form 10-K, Form 10-Q and other documents of IPC or Max, as the case may be, on file with the SEC. Risks and uncertainties relating to the proposed transaction include the risks that: the parties will not obtain the requisite shareholder or regulatory approvals for the transaction; the anticipated benefits of the transaction will not be realized; and/or the proposed transactions will not be consummated. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We do not intend, and are under no obligation, to update any forward looking statement contained in this presentation. ADDITIONAL INFORMATION ABOUT THE PROPOSED BUSINESS COMBINATION AND WHERE TO FIND IT: This presentation relates to a proposed business combination between IPC and Max. On May 7, 2009, IPC and Max filed with the SEC a definitive joint proxy statement/prospectus of IPC and Max. This presentation is not a substitute for the definitive joint proxy statement/prospectus or any other document that IPC or Max may file with the SEC or send to their respective shareholders in connection with the proposed transaction. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS AND ALL OTHER RELEVANT DOCUMENTS FILED OR THAT WILL BE FILED WITH THE SEC AS THEY BECOME AVAILABLE BECAUSE THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED BUSINESS COMBINATION. All such documents, if filed, would be available free of charge at the SEC’s website (www.sec.gov) or by directing a request to IPC, at Jim Bryce, President and Chief Executive Officer, or John Weale, Executive Vice President and Chief Financial Officer, at 441-298-5100, in the case of IPC’s filings, or Max, at Joe Roberts, Chief Financial Officer, or Susan Spivak Bernstein, Senior Vice President, Investor Relations at 441-295-8800, in the case of Max’s filings. PARTICIPANTS IN THE SOLICITATION: IPC and Max and their directors, executive officers and other employees may be deemed to be participants in any solicitation of IPC and Max shareholders, respectively, in connection with the proposed business combination. Information about IPC’s directors and executive officers is available in the definitive joint proxy statement/prospectus filed with the SEC on May 7, 2009, relating to IPC’s 2009 annual meeting of shareholders; information about Max’s directors and executive officers is available in the amendment to its annual report on Form-10K, filed with the SEC on April 1, 2009. |
![]() 3 IPC’s Strategic Review – A Path to a Merger With Max Since its inception in 1993, IPC has successfully operated as a property catastrophe reinsurer Following KRW hurricane losses in 2005, IPC reevaluated its business model Rating agencies increased capital requirements for property catastrophe business IPC’s Board reviewed strategic options to achieve the following goals: Increase scale and scope / diversify into non-correlated risks Preserve IPC’s existing franchise value Create a platform to deliver superior value to IPC shareholders Increase management bench strength IPC’s Board determined a merger-of-equals was the best way to achieve its goals Other alternatives, including organic growth, were actively considered Max best achieved IPC’s goals and provided a clear path to create significant value IPC completed a thorough diligence process on Max |
![]() 4 Max Transaction Result of A Thorough and Robust Process The merger with Max resulted from a lengthy and careful process where the IPC Board considered organic growth, and a possible combination with a significant number of counterparties, including some who were invited to submit proposals and others that approached IPC IPC established a Business Development Committee IPC engaged J.P. Morgan to assist with the strategic review process in determining whether to pursue an organic growth plan or a business combination IPC reviewed a broad list of potential counterparties, including Validus IPC authorized J.P. Morgan to contact a select number of potential counterparties IPC also received inbound calls from various parties, some of whom were invited in the process IPC entered into confidentiality and standstill agreements with eight potential counterparties, including Max IPC engaged in discussions with six potential counterparties, including Max, and for formal merger proposals IPC received four written proposals and one oral proposal IPC decided to pursue further discussions with three potential counterparties IPC developed counter proposals IPC engaged in detailed negotiations and diligence with Max and another potential counterparty, which included the development of combined business plans IPC determined that pursuing exclusive discussions with Max would be in its best interest IPC and Max engaged in additional due diligence and finalized negotiations before executing the amalgamation agreement January 29 — March 1, 2009 January 2009 December 2008 November — December 2008 October — November 2008 Early 2008 2007 |
![]() 5 A truly diversified, balanced global underwriting platform Strong and vibrant franchise serving both property & casualty markets Multiple operating platforms – Bermuda, Dublin, U.S. and Lloyd’s Strong capital base with over $3 billion in equity and minimal leverage Greater size enhances “margin of safety” and financial flexibility More efficient use of capital - $300 to $400 million of excess capital Increased ability to accelerate growth in a hardening market Both property & casualty markets currently provide attractive opportunities Strong and deep management and underwriting teams IPC/Max Creates A World Class Specialty Company An IPC/Max merger brings together the upside of the short-tail market and the stability of returns of long-tail business |
![]() 6 Property / property cat P&C short-tail 93% 7% 2008 GPW = $403 million Reinsurance Insurance 47% 53% Reinsurance Insurance 35% 65% 2008 GPW = $1,254 million 2008 GPW = $1,658 million Max Capital Combined Reinsurance 100% IPC Holdings A Truly Diversified Underwriting Platform Life & annuity P&C long-tail P&C short-tail Property / property cat 20% 19% 42% 19% Property / property cat P&C short-tail P&C long-tail Life & annuity 38% 16% 32% 15% |
![]() 7 A Combination Creates Size and Scale Combination provides greater size and scale Enhances valuation and ratings profile Better positioning with clients and brokers Platform/underwriters are in place 12/31/2008 Company Equity 1 Everest Re $4,960 2 AXIS 4,461 3 PartnerRe 4,199 4 Arch Capital 3,433 5 Transatlantic 3,198 IPC + Max 3,131 6 RenaissanceRe 3,033 7 OdysseyRe 2,828 8 Aspen 2,779 9 Allied World 2,417 10 Endurance 2,207 11 Validus 1,939 12 IPC Holdings 1,851 13 Platinum Re 1,809 14 Montpelier Re 1,358 15 Max Capital 1,280 16 FlagstoneRe 986 17 Greenlight Capital 485 ____________________ (1) Includes RE, AXS, PRE, ACGL, TRH and RNR. (2) Includes ORH, AHL, AWH, ENH, VR, IPCR, PTP, MRH and MXGL. (3) Based on A.M. Best financial strength ratings. Average Price / Book Multiples 3-Year 2007 2008 Current Rating (3) > $3.0 billion of equity (1) 1.27x 1.39x 1.09x 0.99x A to A+ < $3.0 billion of equity (2) 1.05x 1.16x 0.89x 0.82x A- to A |
![]() 8 Opportunistic Expansion in a Hardening Market A merger creates excess capital of $300 to $400 million through diversification Ability to profitably deploy capital for new business and capital management Total property / property catastrophe premiums of over $550 million Peak catastrophe risk (1 in 250 PML) will be limited to 20% of capital Retentions on Max’s seasoned casualty insurance business expected to increase Lloyd’s expected to contribute approximately $150 million in gross premiums in 2009 ____________________ (1) Does not reflect GAAP purchase accounting adjustments. For more information, see the joint proxy statement/prospectus filed with the SEC by IPC on May 7, 2009. ($mm) Combined (1) 2008 GPW $403 $1,254 $1,658 2008 NPW $397 $840 $1,237 12/31/2008 Equity $1,851 $1,280 $3,131 NPW / Equity 0.21x 0.66x 0.40x |
![]() 9 Diversified Business = More Stable Underwriting Returns Each $1 of property catastrophe business requires as much capital as writing $2.5 to $3.0 of casualty business, depending on the class Aggregate underwriting profit is similar – but more stable results 50% to 60% combined ratio in property is equivalent to achieving a 80% to 87% combined ratio in casualty based on higher (2.5x - 3.0x) premium leverage Current casualty business written is in line with these underwriting levels Earnings enhanced by higher investment income due to longer duration of liabilities Capital to be opportunistically deployed to generate highest risk adjusted returns Segments of the casualty market currently offer attractive opportunities A diversified portfolio of risks allows capital to be deployed more efficiently Diversified mix of business = lower underwriting volatility and more efficient utilization of capital |
![]() 10 Strong Balance Sheet and Capital Base Combined (2) ____________________ (1) Investment portfolio includes cash. (2) Does not reflect GAAP purchase accounting adjustments. For more information, see the joint proxy statement/prospectus filed with the SEC by IPC on May 7, 2009. (3) Max corporate debt excludes $150 million of borrowings under primary credit facility, which were repaid in April 2009. Balance sheet strength and liquidity positions the combined company for future opportunities As of March 31, 2009 ($mm) Investment Portfolio (1) $2,190.0 $5,036.0 $7,225.9 Total Assets $2,453.1 $7,177.4 $9,630.5 Loss & LAE Reserves $354.5 $4,311.7 $4,666.2 Stockholders' Equity $1,849.5 $1,262.9 $3,112.3 Corporate Debt (3) $0.0 $91.4 $91.4 Total Debt / Capitalization 0.0% 6.7% 2.9% Investments / Equity 1.18x 3.99x 2.32x |
![]() 11 Fixed Income 81% Alternatives / Equities 13% Cash 6% 3/31/09 - $5.0 billion 3/31/09 - $2.2 billion IPC and Max Maintain a High Quality Investment Portfolio Max Capital IPC Holdings IPC and Max currently have similarly positioned investment portfolios Alternatives / equities of combined portfolio to be reduced to 5%-7% of total Fixed income 69% Cash 19% Alternative investments 12% |
![]() 12 IPC/Max Merger Rationale |
![]() 13 Max Transaction In-Line with IPC’s Strategic Objectives Significant Shareholder Value Creation Increase Scale and Scope Strong capital base with over $3 billion of equity Reduce IPC’s earnings volatility as a standalone property cat company Established global and diversified operating platforms More efficient use of capital from scale, diversification and reduced correlation Diversify into Non- Correlated Risks Highly complementary businesses with limited overlap Common culture and low integration risk Preserve IPC’s Existing Franchise Value IPC shareholders continue to benefit from IPC’s franchise value built over 15 years A combination increases return on capital Deliver Superior Value to Shareholders Clear path to achieve significant upside in valuation Increase Management Depth Experienced management and underwriting teams with long-standing industry knowledge and relationships |
![]() 14 $26 $28 $31 $41 $26.49 IPC Price 05/08/09 IPC Run-Off Case IPC Monoline Case IPC Organic Growth Case IPC/Max Combined IPC / Max Offers Significant Value to Shareholders Valuation of IPC / Max Is Opportunistic Significant Value Creation — IPC Implied Price Per Share 0.77x 0.72x Max IPC +46% +56% +31% IPC / Max Delivers Higher ROE +55% 14% 11% IPC Monoline Case Combined 2009E – 2013E Average ROE (1) (1) ____________________ (1) Based on the "combined entity case 1" referred to in the joint registration statement/proxy of IPC and Max under the heading "The Amalgamation--Opinion of J.P. Morgan Securities Inc., Financial Advisor to IPC's Board”. Price / Book Value Per Share Prior to Merger (at 2/27/09) (1) (1) (1) |
![]() 15 IPC / Max Transaction Expected to Close Immediately After June 12 th The merger with Max is expected to close immediately after June 12 th , prior to the 2009 hurricane season Completion Hart-Scott-Rodino Lloyd’s UK FSA Ireland Delaware Insurance Department Hearing May 8 th Regulatory Approval Indiana Insurance Department A.M. Best Moody’s Joint Rating Agency Meetings Standard & Poor’s IPC lenders Syndicated Credit Facilities Max lenders Proxy statement effective IPC shareholders June 12 th Shareholder Approvals Max shareholders June 12 th |
![]() 16 Max Transaction and Validus Offer Are NOT “Either Or” Options |
![]() 17 March 31, 2009: Validus announces unsolicited, stock-for-stock, below book value, takeover proposal of IPC April 7, 2009: IPC Board unanimously determines Validus proposal is NOT “Superior” and reaffirms its recommendation that IPC shareholders vote in favor of the merger with Max “The Validus Offer Fails to Meet IPC’s Diversification Goals” - Max’s diversified operations offer the best path to achieve diversification “The Max Transaction Has Significant Value Creation Potential and Upside for IPC Shareholders” - It also provides greater book value per share to IPC shareholders “The Validus Amalgamation Proposal is Less Certain, is Riskier for IPC’s Shareholders and Would Take Longer to Close” - Any transaction with Validus likely could not be completed before September, right in the middle of wind season April 8, 2009: Validus initiates hostile no vote proxy contest and publicly threatens litigation April 30, 2009: IPC Board unanimously reaffirms that the Validus proposal is NOT “Superior” and recommends IPC shareholders vote FOR the merger with Max IPC and Max are Committed to Completing a Transaction Choice for IPC Shareholders – Vote to Approve Max Merger or NO Transaction |
![]() 18 Max Offers Certainty vs. NO DEAL with Validus Deal vs. No Deal “Binding”? Closing Max Offers Certainty… …Validus’ Offer is Risky IPC shareholders have a deal-in-hand with Max Max meets the strategic and financial objectives of IPC There is NO "deal" with Validus Voting against Max merger does not mean IPC would choose to sell itself to Validus below book value VR does not meet strategic objectives of IPC VR’s proposed exchange offer could not be completed and is highly conditional IPC’s bye -laws do not allow for any shareholder to be the registered owner of more than 9.9% of the compa ny’s outstanding shares Scheme of Arrangement is impractical and is subject to substantial legal difficulties Max merger is executed and is binding IPC and Max ha ve signed a agreement Satisfactory indications from ratings agencies IPC has performed due diligence on Max Credit facility consents are in hand Regulatory approvals received VR's proposal is not binding VR can withdraw offer at any time No joint discussions with ratings agencies IPC has not conducted due diligence on VR Consents needed under credit facilities Immediately after June 12 th – at start of hurricane season At the earliest, a hypothetical VR transaction would close during hurricane season – which could change both firms’ plans |
![]() 19 The Validus Proposal is Not Superior Is Diversification Good? “Stock Premium” is Illusory Risk Management Max Offers Certainty… …Validus’ Offer is Risky IPC/Max has diversification with uncorrelated risks and a global diversified platform Combining two short-tail CAT firms is riskier Validus fails to meet IPC's diversification goals Max at 53% of 52-week high at time of deal A combination with Max delivers more book value per share to IPC Max has historically traded at a premium to Validus VR at 93% of 52-week high at time of offer VR offer dilutive to IPC book value VR has significantly underperformed market and peers since going hostile on IPC – VR has declined 5% vs. 10% increase for peers Max has a proven, long-term, operating history Ike/Gustav losses of 3% of 6/30/08 equity Smallest loss among peer group Validus has a short and questionable operating history Ike/Gustav losses of 12% of 6/30/08 equity Largest loss among peer group |
![]() 20 ____________________ Source: Company filings. Property focused reinsurers include RNR, IPC, VR, MRH and FSR. Diversified reinsurers include RE, AXS, ACGL, TRH, PRE, ORH, AWH, ENH, AHL, PTP and MXGL. Validus had the worst combined ratio relative to its mono-line peers Validus began operations following Hurricanes Katrina, Rita and Wilma Diversified Platforms Generate More Consistent Margins Diversified Reinsurers Property Focused Reinsurers Validus has underperformed its peers over the last 3 years Median 94% 116% 85% 83% 94% 94% Max 94% 106% 86% 88% 92% 93% Median 78% 201% 55% 61% 89% 97% 68% IPC 78% 252% 33% 50% 56% 94% 46% VR 57% 62% 92% NA 70% 3 year Average 78% 140% 33% 50% 56% 71% 104% 252% 60% 73% 92% 116% 0% 25% 50% 75% 100% 125% 150% 300% 2004 2005 2006 2007 2008 Average 83% 84% 75% 77% 96% 84% 104% 101% 96% 96% 124% 102% 0% 25% 50% 75% 100% 125% 150% 300% 2004 2005 2006 2007 2008 Average |
![]() 21 Validus has significant volatility embedded in its underwriting operations Validus indicates its 1 in 250 year peak PML represents 33% of equity…whereas Validus lost 12.4% of its equity in Ike/Gustav, a 1:10-15 year event? Validus Has Significant Exposure to Catastrophes Ike/Gustav Ultimate Net Losses as a % of 6/30/08 Common Equity ($ in millions) 3.4% 12.4% 11.0% 10.1% 8.9% 8.4% 8.1% 8.1% 7.8% 7.0% 6.7% 6.3% 6.0% 5.0% 4.8% 4.6% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% VR FSR RNR MRH PTP ACGL AXS PRE AHL IPCR ENH ORH TRH AWH RE MXGL (1) (2) (2) (3) Losses $256 $140 $276 $140 $165 $287 $384 $305 $171 $135 $148 $155 $113 $257 $50 $170 ____________________ Source: Company filings as of 12/31/08. Losses are generally disclosed net of reinstatement premiums. (1) Results reflect Ike only. (2) Equity includes preferred, which subsequently converted to common. (3) TRH does not disclose specific losses but disclosed “$169.7 million principally relating to Hurricane Ike” or 5.0% of 6/30/08 common equity. VR increased its Ike reserves by 42% in Q4 2008 Validus had the greatest loss among its broad peer group |
![]() 22 Max Provides IPC Shareholders More Value than Validus Diluted Tangible Book Value per IPC Share Diluted Book Value per IPC Share Max delivers 29% more value to IPC’s shareholders vs. Validus Max delivers 23% more value to IPC’s shareholders vs. Validus $26.19 $33.83 $20.00 $25.00 $30.00 $35.00 $40.00 Max Validus $34.93 $28.35 $20.00 $25.00 $30.00 $35.00 $40.00 Max Validus As of December 31, 2008 ____________________ Note: See appendix for book value per share calculations included herein. As a multiple of IPC 1.03x 0.80x As a multiple of IPC 1.06x 0.86x |
![]() 23 0.87x 0.83x 0.85x 1.00x 0.50x 0.60x 0.70x 0.80x 0.90x 1.00x 1.10x Max IPC VR Composite ____________________ As of May 8, 2009. (1) Composite includes TRH, AWH, PTP, MRH, RE, PRE, ACGL, AHL, RNR, ENH, AXS, ORH. Max Offers More Upside to IPC Shareholders Price to Book Value – 2008 (Average) (1) (1) Max has historically traded at a higher price/book valuation than VR Max offers significant upside for IPC shareholders Clear path to create significant value for shareholders Validus has concentrated private equity ownership – potential overhang on future valuation Historical Price to Book Value Comparison Price as a % of 52 Week High Average Since 3 - Year VR IPO 2007 2008 Current Max 0.99x 0.90x 1.11x 0.87x 0.75x Validus NA 0.92x 1.07x 0.85x 0.89x 76% 89% 78% 55% 0% 20% 40% 60% 80% 100% Max IPC VR Composite |
![]() 24 Max Offers a Higher Implied Price to IPC Shareholders ____________________ (1) Exchange ratio of 0.6429 IPC shares per Max share implies 1.5555 Max shares per IPC share. (2) Exchange ratio of 1.2037 Validus shares per IPC share. Validus Average Max Average $10.0 $15.0 $20.0 $25.0 $30.0 $35.0 $40.0 $45.0 $50.0 7/25/07 10/5/07 12/17/07 2/27/08 5/10/08 7/21/08 10/2/08 12/13/08 2/24/09 5/8/09 Average Implied Price to IPC Since YTD VR IPO 2007 2008 2009 Max Capital (1) $35.53 $41.72 $35.61 $26.30 Validus (2) 27.93 29.34 27.13 28.49 |
![]() 25 $31.67 $25.00 $30.00 $35.00 Max Validus $28.80 $33.23 $32.85 $25.00 $30.00 $35.00 IPC Standalone Max Validus $29.98 $33.67 $32.85 $25.00 $30.00 $35.00 IPC Standalone Max Validus $31.97 $25.00 $30.00 $35.00 Max Validus ____________________ (1) Excludes purchase accounting adjustments and transaction expenses. For more information, see the joint proxy statement/prospectus filed with the SEC by IPC on May 7, 2009. Max Transaction is Accretive to IPC – Validus is Dilutive Diluted Tangible Book Value per IPC Share (12/31/08) As a multiple of IPC 0.96x Pro Forma for PGAAP Combined (1) Diluted Book Value per IPC Share (12/31/08) As a multiple of IPC 0.97x Combined (1) Pro Forma for PGAAP ? ? As a multiple of IPC 1.03x 0.91x 12.3% dilutive to IPC As a multiple of IPC 1.01x 0.88x No higher than $28.52 No higher than $29.70 8.7% dilutive to IPC Less than 0.88x Less than 0.90x |
![]() “It remains our view that the IPC-Max deal is a superior one for IPC shareholders than the proposed hostile transaction with Validus…The Max-IPC platform offers shareholders considerable diversification and creates a platform with a global presence…The Max-IPC amalgamation is a deal which has good visibility to closing in June and should present minimal integration challenges in the quarters ahead…The Max-IPC combination will produce an entity with excess capital which can be deployed into an improving insurance or reinsurance pricing environment.” - RBC Capital Markets, Mark A. Dwelle May 5, 2009 “We do not like the potential IPCR merger for VR, as we believe the resulting combination would have too large a concentration of catastrophe exposed business (particularly heading into Atlantic Hurricane season), as well as increased investment risk and an uncertain rating agency reaction. We continue to believe that the IPCR/MXGL merger will be approved by IPCR shareholders when they vote in June.” - Keefe, Bruyette & Woods, Dean Evans May 5, 2009 Research analysts have expressed strong support for an IPC / Max merger, placing significant emphasis on the diversification that Max provides IPC “An IPCR/MXGL merger has strategic advantages in our view including: 1) increased diversification, 2) ability to free up excess capital (est. at $300-$400mm) and 3) improved likelihood of ultimately achieving an A rating.” - Fox-Pitt Kelton Cochran Caronia Waller, Daniel Farrell April 7, 2009 Research Analysts Emphasize Diversification 26 |
![]() 27 Why You Should Vote For The IPC / Max Merger Compelling strategic combination Leading specialty insurance/reinsurance business Global platform with enhanced size and scale Diversification into complementary and non-correlated business lines Well established, entrepreneurial management team Offers significant value to shareholders Result of a thorough and robust process Speed and certainty of closing The Max transaction and the Validus offer are NOT “either or" options Choice for IPC Shareholders – Vote to Approve Max Merger or NO Transaction We expect to close our combination immediately after the June 12 th shareholder vote, before hurricane season |
![]() 28 Overview of Max Capital |
![]() 29 Global underwriter of specialty insurance and reinsurance Multiple operating platforms - Bermuda, Dublin, United States, and Lloyd’s Diversified business profile across specialty classes of business Highly experienced management with proven track record Opportunistic and disciplined underwriting strategy Analytical and quantitative underwriting orientation 5 year average combined ratio, with cats, of 93% Strong, liquid balance sheet with conservative reserving track record Gross premiums written (2008) of $1.3 billion and ending equity of $1.3 billion Prudent capital management - $305 million in dividends/repurchases over last 5 years Significant expansion of underwriting platforms with minimal goodwill High quality investment portfolio repositioned to reflect traditional underwriting base Alternative investments are now a much smaller part of Max’s asset base at 11.9% and are to be reduced to 5% to 7% Max has evolved and repositioned itself since its formation in 1999 Max Capital Today Short-Tail Long-Tail 62% 38% Insurance Reinsurance 53% 47% |
![]() 30 Global Reach Through Established Platforms Bermuda / Dublin Reinsurance Bermuda / Dublin Insurance Lloyd’s U.S Specialty Insurance Major Classes Agriculture Aviation Excess liability Medical malpractice Professional liability Property Marine and energy Whole account Workers’ comp Life and annuity Aviation Excess liability Professional liability Property Personal accident Financial institutions Professional liability Property General liability Marine Property Operating Regions United States Latin America Canada European Union Japan Australia New Zealand United States European Union United Kingdom Japan Denmark United States Offices Bermuda Dublin Bermuda Dublin Hamburg London Leeds Tokyo Copenhagen New York Philadelphia Richmond Atlanta Dallas San Francisco |
![]() 31 Max Has a Strong Market Position in Specialty Classes … Working layer excess business Focus on Fortune 1000 customers 2008 combined ratio = 88% 2008 GPW - $389 million 2008 GPW - $420 million Bermuda / Dublin Insurance Bermuda / Dublin Reinsurance Working layer excess / quota share business Cross class capability 2008 combined ratio = 87% Excess Liability Professional Liability Aviation Property 14% 14% 41% 32% Other General Liability Marine & Energy Whole Account Aviation Prof. Liabliity Workers Comp Med. Mal. Agriculture Property 25% 19% 18% 13% 9% 8% 3% 3% |
![]() 32 … With an Attractive Position in the U.S. Market and Lloyd’s Launched in 2007 Nationwide niche E&S underwriter Growing into expense base – target combined ratio of 85% to 90% Expected GPW of $250 million in 2009 2008 GPW - $194 million 2008 GPW - £65 million (1) U.S. Insurance Max at Lloyd’s Acquired in November 2008 Direct and reinsurance Expected GPW of $150 million in 2009 ____________________ (1) GPW reflects full year of business, which includes periods prior to the acquisition by Max. Marine General Casualty Property 20% 31% 49% Accident & Health Fin. Institutions Prof. Indemnity / Med. Mal. Employers' Public Liability Property Treaty 45% 1% 19% 18% 17% |
![]() 33 As % of Total Investments Max Investment Portfolio Highlights ____________________ (1) Peers include: IPCR, PRE, ORH, ACGL, RE, RNR, MRH, ENH, TRH, AXS, AWH, PTP, VR, AHL, FSR, and GLRE. Peer average represents 3/31/09 allocation of preferred / equities and “other investments” as % of total investments. Alternatives allocation is decreasing Alternative investments 12% Cash 19% Fixed income 69% Long / Short funds 41% Opportunistic 3% Distressed Securities 14% Arbitrage strategies 24% Emerging / Global Markets 18% 5%-7% 12% 29% 0% 5% 10% 15% 20% 25% 30% 35% Max 12/31/05 Max 3/31/09 Target Market neutral / absolute return focus Max alternatives in line with Bermuda peers Max / IPC alternatives target = 5%-7% Peer group (1) (average) = 10% |
![]() 34 Overview of IPC |
![]() 35 Established in 1993, sponsored by AIG, listed on Nasdaq since 1996 Focused on property catastrophe reinsurance Majority written on an excess of loss basis for primary insurers rather than reinsurers Subject to aggregate limits on exposure to losses Approximately 258 clients during 2008 (36% U.S.-based), including many of the leading insurance companies around the world No single ceding insurer accounted for more than 3.7% of GPW, excluding reinstatement premiums IPC Overview ($mm) 2007 2008 Gross premiums written $404.1 $403.4 Net premiums earned 391.4 387.4 Net income (Loss) $385.4 $90.4 Operating earnings per common share (diluted) $4.56 $4.36 Assets $2,627.7 $2,388.7 Shareholders’ equity 2,125.7 1,850.9 Book value per share (diluted) $32.42 $32.85 Operating return on average common equity 15.4% 13.0% Loss & LAE ratio 31.9% 40.2% Expense ratio 18.0% 16.2% Combined ratio 49.9% 56.4% A.M. Best FSR rating (outlook) A (Neg) A (Neg) Standard & Poor’s FSR rating (outlook) A- (Stable) A- (Stable) |
![]() 36 Europe 28% U.S. 53% Australasia 3% Worldwide 8% Japan 6% Other 3% U.S. 42% Australasia 3% Worldwide 21% Other 1% Japan 5% Europe 28% Catastrophe 80% Retro 10% Risk Excess 3% Aviation 5% Other 2% Other 4% Aviation 4% Risk Excess 3% Retro 6% Catastrophe 84% Established and Consistent Business Risk type 2003 2008 Risk type Geography Geography ____________________ (1) Excludes reinstatement premiums GPW (1) = $315.5 million GPW (1) = $370.9 million |
![]() 37 42 36 29 13 51 136 62 112 17 18 61 237 15 32 40.2 17 17 19 20 23 24 21 18 17 17 17 15 18 18 16.2 59% 54% 48% 33% 74% 160% 83% 129% 34% 35% 78% 252% 33% 50% 56.4% 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Loss ratio Expense ratio IPC Performance NPE growth ($mm) Book value per share growth (1) Asset growth ($mm) $74.7 $387.4 $0 $100 $200 $300 $400 $500 1994 2008 $13.76 $32.85 $0.0000 $10.0000 $20.0000 $30.0000 $40.0000 1994 2008 $387.0 $2,388.7 $0 $1,000 $2,000 $3,000 1994 2008 ____________________ (1) Represents diluted book value per common share (2) Calculated as net income (loss), available to common shareholders divided by the average common shareholders’ equity (excluding convertible preferred shares) Underwriting performance WTC: $116mm loss Hurricanes Katrina, Rita, Wilma: $977mm loss 20% 24% (38%) 9% 18% 17% (1%) 8% 1% 12% 20% 20% 19% ROAE² Average loss ratio 60.1% Average expense ratio 18.5% 15% 4% Average combined ratio 78.5% |
![]() 38 Book Value Calculations |
![]() 39 Shares outstanding Basic shares 55,855,103 (7) 55,805,790 (10) 35,877,542 91,732,645 Warrants (net) 0 635,728 (11) 408,710 408,710 Stock options (net) 18,608 (8) 120,685 (12) 77,589 96,197 Restricted stock awards 474,987 (8) 447,195 (12) 287,502 762,489 Diluted shares outstanding (1) 56,348,698 57,009,398 36,651,342 93,000,040 Book value per share Shareholders' equity $1,850,947 (9) $1,280,331 (13) $1,280,331 $3,131,278 Book value per share (2) $33.14 $22.94 $35.69 $34.13 Diluted book value per share Shareholders' equity $1,850,947 (9) $1,280,331 (13) $1,280,331 $3,131,278 Proceeds from exercise of Warrants and stock options (3) 0 0 0 0 Diluted book value $1,850,947 $1,280,331 $1,280,331 $3,131,278 Diluted book value per share (4) $32.85 $22.46 (14) $34.93 $33.67 Tangible book value per share Shareholders' equity $1,850,947 (9) $1,280,331 (13) $1,280,331 $3,131,278 Goodwill and other intangible assets 0 (40,488) (15) (40,488) (40,488) Tangible shareholders' equity $1,850,947 $1,239,843 $1,239,843 $3,090,790 Tangible book value per share (5) $33.14 $22.22 $34.56 $33.69 Diluted tangible book value per share Diluted book value $1,850,947 $1,280,331 $1,280,331 $3,131,278 Goodwill and other intangible assets 0 (40,488) (15) (40,488) (40,488) Diluted tangible book value $1,850,947 $1,239,843 $1,239,843 $3,090,790 Diluted tangible book value per share (6) $32.85 $21.75 $33.83 $33.23 Calculation of Combined Book Value Per Share (IPC / Max) As of December 31, 2008 Combined (a) (per IPC share) Max IPC Value Delivered by Max per IPC Share (0.6429) 2.5% accretive to IPC 1.2% accretive to IPC ____________________ (a) “Combined” figures exclude impact of purchase accounting adjustments. |
![]() 40 Calculation of Combined Book Value Per Share (IPC / VR) As of December 31, 2008 Validus IPC Termination Fee Combined (b) (per IPC share) 8.7% dilutive to IPC 12.3% dilutive to IPC ____________________ (a) In order to place figures on a comparative basis, “combined” figures are shown per share of IPC by converting the exchange ratio of 1.2037 VR shares per IPC share to 0.8308 (1 ÷ 1.2037) IPC shares per VR share. (b) “Combined” figures exclude impact of purchase accounting adjustments. Value Delivered by VR per IPC Share (1/1.2037) (a) Shares outstanding Basic shares 55,855,103 (7) 75,624,697 (16) 62,826,865 118,681,968 Warrants (net) 0 2,856,884 (16) 2,373,419 2,373,419 Stock options (net) 18,608 (8) 848,758 (16) 705,124 723,732 Restricted stock awards 474,987 (8) 2,986,619 (16) 2,481,199 2,956,186 Diluted shares outstanding (1) 56,348,698 82,316,958 68,386,606 124,735,304 Book value per share Shareholders' equity $1,850,947 (9) $1,938,734 (16) $1,938,734 $(50,000) $3,739,681 Book value per share (2) $33.14 $25.64 $30.86 $31.51 Diluted book value per share Shareholders' equity $1,850,947 (9) $1,938,734 (16) $1,938,734 $(50,000) $3,739,681 Proceeds from exercise of Warrants and stock options (3) 0 0 0 0 Diluted book value $1,850,947 $1,938,734 $1,938,734 $(50,000) $3,739,681 Diluted book value per share (4) $32.85 $23.55 $28.35 $29.98 Tangible book value per share Shareholders' equity $1,850,947 (9) $1,938,734 (16) $1,938,734 $(50,000) $3,739,681 Goodwill and other intangible assets 0 (147,610) (17) (147,610) (147,610) Tangible shareholders' equity $1,850,947 $1,791,124 $1,791,124 $(50,000) $3,592,071 Tangible book value per share (5) $33.14 $23.68 $28.51 $30.27 Diluted tangible book value per share Diluted book value $1,850,947 $1,938,734 $1,938,734 $(50,000) $3,739,681 Goodwill and other intangible assets 0 (147,610) (17) (147,610) (147,610) Diluted tangible book value $1,850,947 $1,791,124 $1,791,124 $(50,000) $3,592,071 Diluted tangible book value per share (6) $32.85 $21.76 $26.19 $28.80 |
![]() 41 Purchase Accounting Adjustments Reserve adjustment of $130 million does not represent a change in the amount of reserves established by Max Represents fair value purchase accounting adjustment, solely as a result of the merger Discount rates are applied to the underlying cash flows, combined with an estimated risk premium Reserve adjustment will be reversed into income each year, increasing net income Increases net income by $13 million (10% of total) in year 1 Cumulative increase of $130 million over the payout period Reserve adjustment has no economic impact – represents only a timing difference Does not impact ultimate losses and loss adjustment expenses IPC 12/31/08 shareholders' equity $1,850.9 Plus: Max 12/31/08 shareholders' equity 1,280.3 Combined 12/31/08 shareholders' equity $3,131.3 Purchase accounting adjustments Less: Adjustment to reserves ($130.0) Less: Transaction expenses (40.0) Plus: Other purchase accounting adjustments 12.1 Pro forma 12/31/08 shareholders' equity $2,973.4 Less: Goodwill and intangibles (28.5) Pro forma 12/31/08 tangible shareholders' equity $2,944.9 IPC 12/31/08 fully diluted book value per share $32.85 Pro forma 12/31/08 fully diluted book value per share $31.97 Pro forma 12/31/08 fully diluted tangible book value per share $31.67 |
![]() 42 Footnotes Note: Book value per share, diluted book value per share, tangible book value per share, and diluted tangible book value per share are all “non-GAAP financial measures” as defined in Regulation G. Combined figures exclude purchase accounting adjustments. For more information on GAAP purchase accounting adjustments, see the joint proxy statement/prospectus filed with the SEC by IPC on May 7, 2009. 1. Calculations are based on treasury stock method for warrants and stock options; and includes all restricted stock and RSUs outstanding as of the 12/31/2008 balance sheet date. Validus’ publicly disclosed calculations are based on the "as-if-converted" method, assuming all proceeds received upon exercise of warrants and stock options will be retained by the Company, and the resulting common shares from exercise remain outstanding. 2. Shareholders’ equity divided by basic shares outstanding. 3. Calculations are based on treasury stock method, assuming the proceeds received upon exercise of warrants and stock options are used to repurchase shares at the 12/31/2008 closing market price. 4. Diluted book value divided by diluted shares outstanding as of the 12/31/2008 balance sheet date. 5. Tangible shareholders’ equity divided by common shares outstanding as of the 12/31/2008 balance sheet date. 6. Diluted tangible book value divided by diluted shares outstanding as of the 12/31/2008 balance sheet date. 7. Common shares outstanding as of 12/31/08 per the IPCR Consolidated Balance Sheet contained within the IPC 2008 Form 10-K. Adjusted to exclude certain restricted stock awards included in shares outstanding. 8. Note 7 in the IPC 2008 Form 10-K Notes to the Consolidated Financial Statements. Adjusted to exclude certain restricted stock awards included in shares outstanding. 9. Per the IPC Consolidated Balance Sheet included in the IPC 2008 Form 10-K. 10. Common shares outstanding as of 12/31/08 per the MXGL Consolidated Balance Sheet contained within the Max 2008 Form 10-K filed 2/19/2009. 11. Note 12 in the Max 2008 Form 10-K Notes to the Consolidated Financial Statements. Based on the treasury stock method. 12. Note 13 in the Max 2008 Form 10-K Notes to the Consolidated Financial Statements. Based on the treasury stock method. 2,021,631 non-vested restricted stock awards included in basic shares outstanding. 13. Per the Max Consolidated Balance Sheet included in the 2008 Form 10-K. 14. As disclosed in Max’s fourth quarter 2008 earnings press release, dated 2/11/2009. 15. Note 5 in the Max 2008 Form 10-K Notes to the Consolidated Financial Statements. 16. Based on page 6 of the Validus Investor Financial Supplement as of 12/31/2008 filed 2/12/2009. 17. Note 6 in the Validus 2008 Form 10-K Notes to the Consolidated Financial Statements. |