AM Best has placed the ratings of Bermuda reinsurer IPC Holdings Ltd. under review with negative implications after the company announced its intention to merge with Max Capital.

IPC and its operating subsidiaries have a financial strength rating of A and issuer credit rating of "a" with the New Jersey-based ratings agency.

AM Best called the merger, that is expected to close in the third quarter, a "sensible transaction" but added that "unlocking the value and driving the sustainable edge will only be realised over the longer term".

The ratings were placed under review because the merger agreement meant IPC "would be largely influenced by Max from a multitude of perspectives, including premium volume, liabilities, operating platforms and information technology systems".

Best added that IPCRe's property catastrophe business would make up a moderate amount of the newly combined, diversified specialty (re) insurance company, but its property business would be a sizeable piece of the property reinsurance segment.

"In the intermediate term, property catastrophe exposures of the combined company would have to be aggregated and analysed for correlations," Best said. "In addition, part of management's time and effort would need to be spent on integrating office space, information technology systems and corporate cultures."

Size and scale coupled with a strong risk-adjusted capital base would be the immediate advantages to the combined organisation, Best added.

IPC's ratings will remain under review until the transaction has closed and Best has completed its evaluation of the merged entity, which will be known as Max Capital Group.