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Charman's Resignation From Axis Confuses Analysts

John Charman's decision to resign as president and CEO of Bermudian insurance group Axis Capital in December 2008, when his contract expires, has left analysts scratching their heads.

John Charman's decision to resign as president and CEO of Bermudian insurance group Axis Capital in December 2008, when his contract expires, has left analysts scratching their heads.

According to a company statement, Charman will leave the company because of divorce proceedings pending in the U.K. High Court. In December he lost an appeal to prevent his estranged wife, Beverley Charman, from accessing account information and deeds pertaining to his Bermuda-based trust, Dragon Holdings, worth £67 million (US$116.6 million).

But the announcement of Charman's future departure has confused analysts, who feel his divorce settlement should have little or no bearing on his position at the helm of Axis. "It does seem very strange," says Cliff Gallant, equity research analyst at investment bank Keefe, Bruyette & Woods. "Typically if your spouse takes all your money, you'd need to keep on working, not stop. I don't know if there is some legal or financial reason why he couldn't work past the end of 2008, but I don't get it."

Gallant adds that the strength of Axis's results for the fourth quarter and full year of 2005 indicate that Axis's board is not trying to oust Charman. Despite catastrophe losses of more than US$1 billion before tax, Axis made a net profit of US$90.1 million in 2005, compared with US$495 million in 2004.

"It's three years away and it's clear he's not leaving because there is a problem at the company," he says. "Presumably if Axis continues to do as well as it has done Charman will make a lot of money and may want to just sit on a beach somewhere. Then again, he's very driven and still in his early 50s."

By the time he resigns, Charman will have spent seven years at Axis since its launch in November 2001. Before forming the start-up in response to capacity shortages following the Sept. 11 attacks, he spent four years at fellow Bermudian insurance group Ace, first as CEO of Ace Global Markets, and later as deputy chairman of Ace INA Holdings and president of Ace International.

Before joining Ace, he spent four years heading Lloyd's Tarquin, the parent company of Charman Underwriting Agencies, which Ace acquired in 1998. As a result of the transaction, he was reportedly awarded £70.6 million (US$122.9 million) in Ace ordinary shares. These shares, in addition to restricted stock options he was able to exercise on terminating his employment with Ace in March 2001, eventually helped him form Axis.

There is already much speculation about who might replace Charman in 2009. Analysts note that there are obvious candidates within the company. These include William Fischer, president and CEO of the company's global reinsurance operations and executive v.p. of its subsidiary Axis Specialty, and Karl Mayr, president and CEO of Axis Re Europe.

Joshua Shanker, equity research analyst at investment bank Citigroup, says Fischer is a more likely internal candidate than Mayr for the top spot. "I would think it more likely to be Bill than Karl," he says. "Bill has met investors on many occasions, so they know him well. But that may be just because he works out of Bermuda. Karl is very well-known among Europeans."

But Gallant says both are equally likely choices. "They both probably have enough talent to run a place on their own," he says. "It wouldn't surprise me at all if either of them was promoted to succeed Charman, particularly since they would have a year or two to grow into the role. There is also Dennis Reding, chairman of Axis Insurance, who was formerly CEO of non-public insurer Westchester Specialty. For a small company, Axis has very good bench strength."

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