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W. MARSTON (MARTY) BECKER – MAX CAPITAL GROUP LTD. (MXGL)
CEO Interview - published 05/04/2009
W. MARSTON (MARTY) BECKER has served as Chairman and Chief Executive Officer of
Max Capital Group Ltd. since October 2006. He has been a Director of Max Capital
Group Ltd., formerly known as Max Re Capital Ltd., and Max Bermuda Ltd.,
formerly known as Max Re Ltd., since April 2004. From 1996 to 1999, Mr. Becker
was Chairman and Chief Executive Officer of Orion Capital Corporation, until its
sale in 1999 to Royal & SunAlliance, where he then served as Vice Chairman and a
Director of Royal & SunAlliance USA until 2000. He was President and Chief
Executive Officer of an Orion Capital subsidiary from 1994 to 1996. From 2002 to
2005, he led the restructuring and wind-down of Trenwick Group Ltd., a Bermuda
insurance company and its subsidiary, LaSalle Holdings from 2002-2007. From 2001
to 2004, he was non-executive Chairman of Hales & Company, a boutique insurance
industry investment bank and private equity investor. Mr. Becker is Chairman and
General Partner of West Virginia Media Holdings, which he co-founded in 2001. He
is a Director of Selective Insurance Group, Inc. Mr. Becker earned his Juris
Doctor and Bachelor of Science in Business Administration degrees from West
Virginia University. He is a Certified Public Accountant and is an admitted
attorney in West Virginia.
SECTOR – NON-LIFE INSURANCE
TWST: Would you start with a brief summary of Max Capital?
Mr. Becker: Max Capital celebrates its 10th anniversary this year. The company
was founded in 1999 and it has accomplished a number of important milestones
along the way, evolving into one of a handful of global enterprises operating in
both the specialty insurance and reinsurance arenas. Max today has over 300
employees with major underwriting platforms in Bermuda, Dublin, six US cities,
and in London at Lloyd's.
TWST: It's a tough time to be talking about financial services given the
existing turmoil in the market. Where do you think we are at this point?
Mr. Becker: I think the property and casualty market is different from the rest
of the financial sector. Most property and casualty companies have fairly
conservative asset portfolios. At the same time, with the cost of capital having
increased so much across the spectrum, the pricing of property and casualty
products is actually improving for the carriers right now. So it's an unusually
good place to be during a recession.
TWST: Where are you in the IPC Holdings deal? Validus made an unsolicited bid to
IPC for about $1.7 billion and upon reviewing that competing offer, IPC's Board
unanimously confirmed its approval of the amalgamation between itself and Max.
Mr. Becker: We believe the IPC merger with Max Capital is a positive
transaction for both sets of shareholders. IPC is a fine property cat company
that has a track record of producing attractive results from a world class
portfolio of business, but IPC has been looking to diversify. The issue with
being a monoline property cat company is it's either feast or famine. You either
have terrific results or your results are not very good, based in large part
upon nature's events, whether it's hurricanes or earthquakes or something else.
Max, on the other hand, has a very diverse book of business, both geographically
and by product, with a good mix of long-tail and short-tail lines, and so we are
a great match for IPC. And both companies will benefit from the enhanced scale
of the post-merger operations.
In a diversified enterprise, you can still write property cat business, but you
have other lines of business that help to stabilize your results and really
bring more consistency in returns. The key is to have diversity across
uncorrelated lines, so a mix of long-tail and short-tail lines is essential if
you are seeking to optimize the benefits of diversity. So you give up the high
highs, but you also give up the low lows. It's a much more investor-friendly
enterprise. The transaction that we signed with IPC in early March is
progressing extremely well. Our preliminary proxy statements have been filed,
the regulatory approvals are well advanced, and it's our expectation that we'll
be having a shareholder vote in the first part of June. Of course, it's
important to understand that the shareholders will only be voting on whether or
not to proceed with the IPC/Max merger. The Validus hostile bid will not be up
for vote and, in the event that IPC shareholders do not approve the IPC/Max
combination, in my view it is unlikely that a deal between IPC and Validus would
actually materialize, and certainly not during the Atlantic hurricane season.
TWST: Assuming the amalgamation goes the way that you like, what will Max
Capital's global footprint look like after that's completed?
Mr. Becker: The combined enterprise will have the portfolio of diversified
products that Max writes today, as well as a significant component of
international property cat business. This is extremely attractive because the
two parts of the business will have different and non-correlated risk
characteristics. The geographic underwriting platform in the merged company will
not be different from what it is today, in that all of IPC's employees are in
Bermuda. So the Bermuda platform just gets larger, but we don't add any new
physical locations. We will, however, have a much strengthened underwriting team
in Bermuda, as the accomplished property cat underwriters of IPC join Max's
talented insurance and reinsurance specialists. We believe that combining a
recognized writer of worldwide property cat business with Max's existing global
platform will create a company that will build greater value for all its
shareholders.
TWST: Is this industry still highly fragmented? Is there still a lot of
consolidation to be done?
Mr. Becker: The insurance industry has always had an ability to spawn new
entrants and then, over time, there is a merger and consolidation process that
takes place. I have said for some time that the Bermuda marketplace is a little
overdue for some consolidation. We have too many entities about the same size,
doing the same thing. A transaction like the IPC deal takes several months of
work and dialogue to ensure that not only does the math work, but the resulting
business model is one that's going to be better for your shareholder base. This
transaction should be terrific for both sets of shareholders.
TWST: The catastrophe environment has been pretty good for the past couple of
years and you must be heartened by the predictions of a tame hurricane season.
Are there any other challenges to worry about in the short to medium term?
Mr. Becker: When you're in the insurance business, you spend most of your life
worrying about something. The property catastrophe business has generally been
good for the past couple of years, but 2005 was a tough year with Katrina, Rita,
Wilma; 2006 and 2007 were fairly light years for hurricane losses, despite 2007
having a very active Atlantic hurricane season; and then in 2008 you had
Hurricane Ike. So it is a business that's a little bit feast or famine. And,
while the predictions are for a tamer hurricane season this year, I'm not sure
they have ever been right, one way or the other. You just do not know what
Mother Nature is going to do.
TWST: Do you foresee anything coming along in the realm of public policy that
will affect you?
Mr. Becker: Clearly, the Obama Administration has been very vocal about its
desire to put in place different rules for oversight of offshore jurisdictions —
not just insurance, but all types of financial services and other products. My
guess is most of that would be favorable for companies like Max, because it will
clear up the regulatory structure in the US. I think it's highly probable that
it will contain federal oversight of insurance. Currently, there are 50
different state oversight insurance bodies, which are very different, and for
companies like us, the US is an expensive place to do business. If there were
simplified federal rules, it would really level the playing field in the US
arena. So my expectation is that there will be legislation, and I think it will
have a number of elements. But, on balance, I think it will probably be positive
for our industry and for the Bermuda market.
TWST: Turning to your Board of Directors for a moment, what are the special
talent assets? What are the resources that they bring to the company, and, over
the next year or two, are you looking to make any changes or additions?
Mr. Becker: We have a strongly engaged Board of Directors committed to good
corporate governance, disclosure and transparency. As a Board, we recognize
that the bar continues to be raised and we are continually evaluating what it
means to be a well-governed company.
TWST: What's on the agenda for the company over the next 12 months? What are
your priorities and what will make that time frame a success?
Mr. Becker: At Max, we have been very successful at building out our franchise
without diluting shareholder value. In 2007, we started a business in the US
called Max Specialty, which this year is expected to generate over $250 million
of premiums, and, in November 2008, we announced the acquisition of a Lloyd's
platform that we now call Max at Lloyd's. So, I think what you're going to see
is a continued focus on organic growth, bringing on additional specialty teams
into our combined enterprise and probably adding specialization in London and
the US.
TWST: Would you introduce us to your top level management team? Who are two or
three of your key individuals?
Mr. Becker: Today the key officers of Max include Peter Minton, our Chief
Operating Officer, who is probably one of the smartest analytical practitioners
in our industry today; Joe Roberts, our CFO, who does an outstanding job; Angelo
Guagliano, the CEO of Max Bermuda, which is our key underwriting enterprise for
Bermuda and for Dublin; and Steve Vaccaro, the CEO and the founder and builder
of Max Specialty. After the merger closes, the senior leadership team of
the combined entity will include both Max and IPC leaders.
TWST: In your discussions with the investment community, are there any recurring
questions or any misperceptions that you're encountering? Do they really
understand the Max Capital story?
Mr. Becker: The investor community is starting to really understand that Max,
today, is a traditional underwriter of specialty insurance and reinsurance —
that it has successfully transitioned from its origins as a Bermuda reinsurance
company with a structured and alternative risk underwriting portfolio and an
investment strategy that included a relatively high proportion of hedge funds
and other alternative investments. We've successfully executed a 180-degree turn
over the past 10 years, and today we believe Max has a really strong traditional
underwriting operation. And we run a fairly similar investment portfolio to the
other major global writers. That story is starting to come through and I think
is being appreciated by the Street.
TWST: What are the key metrics that investors should focus on as they track your
performance?
Mr. Becker: What they should focus on is a reasonable rate of organic growth,
supported by a better than average combined ratio. We pride ourselves on being
an effective underwriting organization. So Max's combined ratios for its
different lines of business have been largely attractive and, in fact, generally
better than our peer group average. What one would expect as we grow is that we
continue to focus on the proper risk quantification and profiling that enables
us to consistently deliver those results.
TWST: What would you suggest are the one or two sets of information that would
give a long-term investor insight into what Max Capital is doing, where it's
going and how it's growing?
Mr. Becker: I think the key thing for long-term investors is our embedded growth
rate of gross written premiums and how that translates into our return on
capital. We believe we manage our capital quite well and that the steadiness and
consistency of the return on capital, in Max, has been extremely favorable.
TWST: Thank you. (KL)
W. MARSTON (MARTY) BECKER
Chairman & CEO
Max Capital Group Ltd.
Max House
2 Front Street
Hamilton HM 11
Bermuda
(441) 295-8800
(441) 295-8899 – FAX
www.maxcapgroup.com
e-mail: info@maxcapgroup.com
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