NEW YORK (Bloomberg) — Flagstone Reinsurance Holdings Ltd., the company formed in response to the 2005 hurricane season, has identified operations it would cut if the firm's offer to buy IPC Holdings Ltd. is accepted.

"We expect the value creation from this deal to materialise quite rapidly for our shareholders," chief executive officer David Brown said yesterday in a conference call. "We know which businesses we would keep, grow or trim and where we will use excess capital this transaction creates."

Reinsurers are seeking to combine with competitors as investment losses cut into capital. Flagstone joined Validus Holdings Ltd. in the bidding last week after IPC's shareholders rejected a combination with Max Capital Group Ltd. All four companies are based in Bermuda.

Validus has made its "best and final offer" for IPC and extended its proposal to 5 p.m. New York time on July 13, the reinsurer said yesterday in a statement.

Industry executives believe there are "more companies than there are distinct strategies and there should be some combination", said Flagstone chairman Mark Byrne in the conference call. "A little bit of stirring up the pot, and boards being reminded of what their obligations are in terms of producing shareholder value is a positive thing."

IPC began seeking partners last year to expand beyond its business of reimbursing insurers after natural disasters.

Flagstone offered 2.638 shares of its stock plus $5.50 in cash for each IPC share, according to a statement issued July 1. That values IPC at about $32.35 a share, or $1.81 billion based on 55.95 million shares outstanding and the July 2 closing price, according to Bloomberg data. Validus's stock and cash offer is $28.63, compared with IPC's $28.27 closing price.

Fitch Ratings yesterday put Flagstone on "credit watch negative" because of "uncertainty as to how combining the two companies' books of business will affect the resulting entities' risk profile and risk adjusted capitalisation".

Flagstone fell 23 cents, or 2.3 percent, to $9.95 in New York Stock Exchange composite trading yesterday. Validus gained $1.07, or 4.8 percent, to $23.22. IPC dropped five cents, or 0.2 percent, to $28.22.

Flagstone expects IPC board members to meet today to make a decision, Mr. Byrne said in the conference call. Allyson Morris, IPC spokeswoman, declined to comment.

Greenhill & Co. is financial adviser to Validus, and Cahill Gordon & Reindel LLP is legal adviser. JPMorgan Chase & Co. is IPC's financial adviser and Sullivan & Cromwell LLP is the reinsurer's legal adviser.