Donegal Group Inc. has announced the execution of an agreement pursuant to which it will acquire all of the outstanding stock of Michigan Insurance Co., a majority-owned stock subsidiary of West Bend Mutual Insurance Co. Michigan Insurance Co., headquartered in Grand Rapids, Mich., writes property/casualty insurance exclusively in Michigan. The company had direct written premiums of $106.6 million and net written premiums of $26.7 million for the year ended Dec. 31, 2009.
Michigan Insurance currently participates in a quota share reinsurance agreement with West Bend, whereby West Bend assumes 75 percent of Michigan Insurance’s business. Michigan Insurancewill enter into a 50 percent quota share agreement with third-party reinsurers and a 25 percent quota share reinsurance agreement with Donegal Mutual Insurance Co to replace the current quota share reinsurance agreement with West Bend as of the closing date of the acquisition. Donegal Mutual Insurance will include its assumed business from Michigan Insurance in its pooling agreement with Atlantic States Insurance Co. Over time, Donegal Group Inc. and Donegal Mutual Insurance Co. will have the ability to reduce the level of external quota share reinsurance and thereby provide additional premium growth for the Donegal Insurance Group. Based on Michigan Insurance Company’s historical underwriting experience and profitability, Donegal Group Inc. believes the acquisition and reinsurance arrangements will be accretive to its earnings immediately upon completion of the acquisition.
The purchase price will be calculated based on the GAAP book value of Michigan Insurance as of the closing date of the transaction. Donegal Group Inc. estimates that the consideration payable to the shareholders of Michigan Insurance will be approximately $39 million.
Donegal Group Inc. had approximately $936 million in total assets and approximately $385.4 million in stockholders’ equity as of March 31, 2010. Donegal Group Inc.’s insurance subsidiaries and Donegal Mutual Insurance Co. conduct property/casualty insurance business together as the Donegal Insurance Group in 18 Mid-Atlantic, Midwestern and Southern states. The Donegal Insurance Group has an A.M. Best rating of “A.”
Donald H. Nikolaus said, “We believe this acquisition will not only enhance our overall business and long-term profitability but also provide for significant future growth as we decide over time to retain a larger percentage of the company’s premiums net of reinsurance.”
The acquisition is subject to a number of conditions, including the approval of the Insurance Department of the State of Michigan. Donegal Group Inc. expects to complete the transaction in the fourth quarter of 2010.