Is this the turning point for Max Capital? After last year's internal investigations, restatement and CEO resignation the company is back on track. But has it become an attractive takeover target? Mairi Mallon reports

The executives at Max Capital Group are on a charm offensive. After a difficult year in 2006, which saw a second internal probe into finite risk retrocessional contracts, then a second restatement of results, followed by the resignation of founder and chief executive officer Bob Cooney, the new management is keen to make much of Max Capital’s earnings and diversified book of business. “I think it is time to get the story out, because the facts speak for themselves,” says W Marston (Marty) Becker, chairman and CEO of Max Capital. “We have got a company that is performing quite well.”

New name, new beginning

The company recently changed its name from Max Re Capital to Max Capital Group, reflecting the evolution of its business strategy from straight reinsurance to a balanced mix of property and casualty insurance and reinsurance products. It is now rumoured to be a potential merger or acquisition candidate by Bermudian monoline catastrophe players interested in diversifying their books.

“From Max’s standpoint, the fact that many organisations feel the company would be a perfect entity to join their business is a real compliment, because what it shows is we have done the right things: we have built a diversified, successful, business platform,” adds Becker. “But the reality is that for now we want to continue that success in our own enterprise.”

Max Re was formed in 1999 in the deepest and darkest times of the soft market, with Bob Cooney at the helm. The company’s business model at the time was unique. It intended to write mostly structured insurance programmes and invest up to 50% of its investment portfolio in alternative assets. Cooney was hailed by many as the inventor of a new kind of Bermuda reinsurer.

Things changed though after the terrorist attacks on September 11 2001, when a crunch in capital led to a severe shortage in reinsurance and the underwriting world returned to profitability. It was then that Max Re transitioned into a far more traditional specialty reinsurer and its investment portfolio also became more traditional. Today it still has a nod to its roots, with about 20% of its investment portfolio invested in a fund of alternative asset funds.

Shock departure

“There was no hiding in the shadows despite any embarrassment the restatement, investigation and resignation of Cooney might have caused

Becker had joined the board of Max Re in 2004 after finding himself unable, like many in the industry, to retire early. “I wasn’t very successful at staying away,” he admits. Previously he had run a specialty insurer in the US called Orion Capital, which he sold to the Royal & SunAlliance in 2000. He then ran the run-off of Trenwick, but his first love was operating and he decided he should follow his passion.

When Cooney tendered his resignation, Becker stepped up to the plate and took over at the helm of Max Re. “I had been observing Max as a director for over two years and had really fallen in love with the organisation,” he explains. “I liked the people, I liked the culture, I liked the businesses fit. I have done business in Bermuda since 1979 so it wasn’t as though doing business in Bermuda was strange… and to me it was an opportunity to take over an organisation that I felt the marketplace under-appreciated and hopefully I would be able to raise the appreciation in the external world.”

Since taking over, Becker and his management team have actively tried to increase the company’s exposure – granting numerous press interviews, attending conferences in the US and Europe and on the whole, being ever-present. There was no hiding in the shadows despite any embarrassment the restatement, investigation and resignation of Cooney might have caused. But then Becker is no stranger to the media and how it works, having co-founded West Virginia Media Holdings in 2001, a corporation which owns television stations and a weekly newspaper. Becker is clearly comfortable being an accessible CEO.

The company has also been going through a re-branding exercise since Cooney’s departure, which has added to the increased publicity. “Max is no longer strictly a reinsurance company, and in fact this year we expect to write more insurance than we will reinsurance,” says Becker.

Negative PR

Becker is also frank about Cooney’s departure and his decision to step into the top role. At the time, rating agency AM Best said the financial effects of the second restatement, at $10m, were less significant than the ramifications of Cooney’s resignation (they left the ratings unchanged).

“The company last year had two or three what I would call ‘negative PR’ events,” says Becker. “They weren’t major financial events, they were negative PR events and at the same time the company was moving to a new plateau. All companies have an evolution and life cycle.” He explains that Bob Cooney was a large shareholder and “he just looked at the situation and he said, you know, I’ve done a great job getting it to here, and now I think it is time to give it to somebody else.

“This year has also seen Max buy an excess and surplus division in the US, which gives it a platform to expand in the states

“It was a very difficult thing for him to do, he was very attached to the company, he is a very significant shareholder, but Bob is not a selfish person,” insists Becker. “Max wasn’t about Bob, Max was about the 150 staff and its shareholders and he wanted to do what was right for everyone.” Becker says he admires Cooney for making that difficult decision. “I think it was a courageous and proper thing to do,” he adds.

Into the US market

This year has so far seen Max buy an excess and surplus division in the US, which gives it a platform to expand in the states. “The evolution to have a US-domiciled company was the next natural step for Max,” says Becker. “We had a Dublin platform, we had a Bermuda platform, the US is the largest insurance market in the world, so having a domestic platform at some point really makes strategic sense.”

He explains it was a mixture of knowing the company needed a US presence, whilst at at the same time coming across a team of people they really liked, which helped to accelerate the decision. “What comes to Bermuda from the US marketplace is principally the large customer, the Fortune 1000 customer,” says Becker. “By having the US domestic platform, we can diversify our customer set to writing the mid-market customer in the US.”

Establishing an excess and surplus platform was, says Becker, a logical choice for Max. “If you look at the specialty products that we write, most of them, if they were written in the US, would be called excess surplus products, so it’s a natural extension for us to be in the excess surplus non-admitted marketplace,” he explains.

Unlike many reinsurers, Max is not in the midst of a capital conundrum. Last year was a profitable one for the firm, but unlike some of its contemporaries, it has already decided what to do with the excess funds. Whatever is left over after the new US platform launch will be spent on a programme of share buybacks. In the first quarter of 2007, it repurchased 795,100 shares at an average price of $24.69. It also announced an additional authorisation to its existing programme, increasing the amount available for share repurchases to $50m. “We expect to continue to opportunistically buyback shares,” confirms Becker.

Mairi Mallon is a freelance journalist.

Max Capital - Max in figures

Q1 2007 Q1 2006
Net operating income of ($) 81m 77m

2006 Key Figures
• In February, Max Capital reported record earnings for 2006;
• For the year, net income was $216.9m compared to $9.5m in 2005;
• For the year the company had net operating income of $222.7m compared to $10.2m in 2005; and
• Net investment income for 2006 increased $43.2m, to $150m, versus $106.8m for the same period in 2005.