Liberty Mutual to Acquire Safeco Insurance in $6.2 Billion Deal

May 5, 2008

Liberty Mutual Group has agreed to acquire all outstanding shares of common stock of Safeco Corp. for $68.25 per share in cash in a deal that will make Liberty Mutual the fifth largest U.S. property/casualty insurer and second largest surety writer.

The proposed transaction, which is valued at approximately $6.2 billion, is subject to approval by Safeco’s shareholders as well as regulators. It is expected to close by the end of the third quarter of 2008. The transaction is not subject to financing contingencies.

Currently, Liberty Mutual Group is the sixth largest property and casualty insurer in the U.S. based on 2007 direct written premium of $20.2 billion, while Safeco had 2007 direct written premium of $5.9 billion.

Safeco will become part of Liberty Mutual Group’s Agency Markets business unit, which had revenues of $5.6 billion in 2007. Combined, the organization will have about 15,000 independent agencies.

“The addition of Safeco significantly expands and strengthens the Liberty Mutual Group,” said Edmund F. Kelly, Liberty Mutual Group chairman, president and chief executive officer. “Safeco’s operations and product mix complement our existing Agency Markets operations.”

Kelly said both organizations also have surety businesses which when combined will form the second largest surety business in the U.S.

Safeco president and chief executive officer Paula Reynolds called the deal an “opportunity to take West Coast inventiveness and launch it with a global brand at a substantial premium to Safeco shareholders.”

$12 Billion Agency Force

Gary Gregg, president of Liberty Mutual Agency Markets, said that with revenue approaching $12 billion after the close, Agency Markets will rank third in personal and fifth in commercial property and casualty products distributed through independent agents in the U.S.

Even before adding Safeco, Agency Markets is the largest regional independent agency force with $7.3 billion in premium.

Safeco sells personal auto and homeowners’ insurance, and also small-case commercial insurance and surety products. For 2007, Safeco reported net income of $707 million and a combined loss and expense ratio of 91.4 percent.

“The acquisition of Safeco by Liberty will provide Liberty with greater personal insurance depth, greater competitive presence in the Western U.S., and greater national scale,” said Standard & Poor’s credit analyst Michael Gross.

The Safeco deal is the second big acquisition in the past year for Liberty Mutual. The insurer finalized its acquisition of Ohio Casualty Corp. last August. That transaction was valued at $2.7 billion.

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Insurance Journal West May 5, 2008
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