Commercial lines insurers’ stocks up; M&A activity steady in 2nd quarter

Stock Prices: Commercial insurers’ stocks were up an impressive 8 percent for the second quarter of 2007. Much of the increase can be attributed to the high premium which was paid for Ohio Casualty Corp. (Nasdaq:OCAS) by Liberty Mutual Group. Ohio Casualty’s stock shot up 45 percent on the merger news.

M&A Activity: Activity has remained consistent throughout 2007, as the sector remains the most active among carriers. The largest acquisition of the year occurred in May when Liberty Mutual and Ohio Casualty Corp. (Nasdaq:OCAS) announced they have entered into a definitive agreement pursuant to which Liberty Mutual will acquire all outstanding shares of OCAS common stock for $44 per share in cash. In another transaction involving a public company being acquired, James River Group Inc. (Nasdaq:JRVR) announced it has signed a definitive merger agreement under which a Bermuda-based holding company organized by the D.E. Shaw group will acquire James River. According to the terms of the merger agreement, stockholders of James River will be entitled to receive $34.50 in cash per share. The purchase price represents 2.6 times March 31, 2007 GAAP stockholders’ equity and 14.6 times diluted earnings per share for the 12 months ended March 31, 2007, and is an 11 percent premium over the 90-day volume weighted average price per share at the signing of the merger agreement. Separately, in a middle market transaction, North Pointe Holdings Corp. (Nasdaq:NPTE) announced it has entered into a purchase agreement to acquire all of Capital City Holding Co. Inc.’s outstanding stock. Capital City Holding Co. owns Capital City Insurance Co., a South Carolina property and casualty insurance company that specializes in workers’ compensation and other commercial specialty coverage for the forestry industry and other main street commercial risks. Capital City has a network of 130 independent agents as well as two affiliates that serve as product distributors. The company is rated “B++” by A.M. Best and for the fiscal year ended Dec. 31, 2006, Capital City reported approximately $64 million in gross written premiums. In addition to the Capital City transaction, two other workers’ compensation transactions took place during the second quarter of 2007. Alleghany Corp. (NYSE:Y) announced it has entered into a definitive agreement to acquire Employers Direct Corp., a direct writer of California workers’ compensation insurance. EDC was founded in 2002 and had statutory surplus of approximately $118 million as of Dec. 31, 2006. Management and the approximately 175 employees of EDC are expected to continue with EDC. June closed out with AmTrust Financial Services Inc.’s (Nasdaq:AFSI) $41.2 million acquisition of Associated Industries Insurance Services Inc. Associated Industries Insurance Co. produced approximately $130 million in gross written premium, $58 million of which was written by AmTrust’s subsidiary, Technology Insurance Co.

Capital Raising: Yet another reinsurer was formed and began trading during the second quarter of 2007. Greenlight Capital Re announced its initial public offering of 10,250,000 Class A Ordinary Shares priced at $19 per share. Substantially all of the net proceeds of the initial public offering will be used to increase the underwriting capacity of the company’s reinsurance operations. Greenlight also granted the underwriters an option to purchase up to an additional 1,537,500 Class A Ordinary Shares to cover allotments, if any.

LMC Capital LLC is a national investment banking firm focused exclusively on the insurance industry. Services include highly qualified, industry-specific advisory relating to mergers & acquisitions, capital raises and valuations. The firm can be contacted at 704-943-2600, by e-mail at Info@LMCCapital.com or visit the firm’s Web site at www.LMCCapital.com.