OLDWICK, N.J., Apr 13, 2009 (A. M. Best via COMTEX) -- MXGL | Quote | Chart | News | PowerRating -- Wedding bells were ringing in Bermuda last month when property catastrophe reinsurer IPC Holdings Ltd. and specialty insurer/reinsurer Max Capital Group Ltd. said they would merge to form the sixth-largest global underwriter in Bermuda.

 

The combined company would be named Max Capital Group and will have $3 billion in shareholder equity and total assets of about $10 billion. IPC said the deal allowed it to diversify its book of business, while Max Capital would stand to gain scale.

But before the champagne could flow, Validus Holdings Ltd. crashed the party and tried to woo IPC away from Max Capital with a counteroffer.

Max and Validus traded barbs over who offered the better proposal. Both companies were looking to buy IPC -- a strong company that had been hit hard by the 2005 hurricane season -- for below book value, a sweet deal for either suitor.

So-called hostile takeovers are not unheard of in the insurance industry, but are unusual. Scor's contentious but ultimately successful bid to buy Converium in 2007 comes to mind.

They may be a rarity in the insurance business because of the heavy regulation. Or maybe it's the nature of the beast, that a good deal is hard for good managers to pass up. When the bigwigs bless the union, it's not considered a hostile offer anymore.

And if it's not a good deal or the target doesn't think it is? Anyone who's ever been married knows how hard it is to move forward with a major purchase without the full support of your spouse.

Perhaps even more unusual is when a company makes an unsolicited bid to buy a company that's already "engaged." Other examples are American International Group Inc.'s unsolicited offer to acquire American General, which had already agreed to wed Britain's Prudential plc in 2001; and Cendant Co., which successfully lured American Bankers Insurance Group away from AIG in 1998.

When someone crashes a merger, it's big news in the industry, the equivalent of breaking the silence in a wedding service when the minister asks if anyone objects to the happy couple's union. But as rare as insurance wedding-crashers are, they may be even more unusual among reinsurers.

Reinsurance is a business driven by people. Sure, reinsurance companies have capital, but their biggest asset -- albeit one that doesn't show up on a balance sheet -- may be the people who work for them. And there are often other ways to acquire talent, short of buying an entire company. Just ask those who've hired away executives from AIG's Lexington Insurance operations.

Secondly, the universe of reinsurance companies is much smaller than that of primary writers. The market is already highly consolidated, with the top five writer -- Swiss Re Group, Munich Re Group, Berkshire Hathaway Group, Hannover Re Group and Lloyd's -- writing $101 billion in gross premiums in 2007, more than the next 30 companies combined, according to the "Global Reinsurance Market Review," an A.M. Best Special Report issued last September.

It's easier to find a match when the pool of contenders is larger.

Still, whenever a company announces a merger plan, it is announcing that it's in play, and in some ways, it's ripe for a counteroffer. So you can't blame Validus for trying, even if it came late to the party.

The board of IPC has decided to stand by its earlier decision to marry Max and is asking its shareholders to approve the merger. Jilted Validus is not backing down, asking IPC shareholders to reject Max.

Hopefully, any wedding among property/catastrophe reinsurers will be finished before the hurricane winds start to blow -- or the honeymoon may prove to be rockier than the courtship.