Mass. Approves Mapfre Acquisition of Commerce Insurance

May 22, 2008

Massachusetts Commissioner of Insurance Nonnie S. Burnes has approved the acquisition of Commerce Insurance Co., principal subsidiary of The Commerce Group of Webster, Mass., by the Spanish insurance company Mapfre, S.A.

The approval will allow Mapfre, one of the largest insurance companies in Spain, to acquire Commerce and its other Massachusetts affiliate Citation Insurance for $2.2 billion. Commerce shareholders will receive $36.70 per share, a price that represented a 22.5 percent premium over the average share price of the previous 30 days when the deal was announced Oct. 30 last year.

Regulators in New York, California and Ohio where Commerce has other subsidiaries must also give their approval to the transaction.
In addtion to Commerce Insurance and Citation Insurance in Massachusetts, Commerce’s property and casualty insurance subsidiaries include Commerce West Insurance Co. in California, American Commerce Insurance Co. in Ohio, and State-Wide Insurance Co. in New York.

The companies anticipate that the acquisition will be closed in the next couple of months. The boards of both companies, and the majority of their shareholders, previously approved the acquisition.

Mapfre is located in Madrid and also has insurance operations in Turkey, the Philippines and throughout Latin America.

Massachusetts law required Burnes to approve the merger unless it was shown that doing so would negatively affect Commerce or insurance consumers.The Division of Insurance said its review found that Mapfre’s entry does not raise anti-competitive concerns and that Commerce will retain ample capital to meet its obligations to its policyholders.

Mapfre has said it will maintain Commerce’s current management structure, employees and headquarters in Webster, Mass., where the insurer is the biggest employer, with 1,900 workers. Mapfre executives indicated they plan to use Commerce as the “foundation for the growth” of its insurance business in the U.S.

The acquisition was also reviewed and cleared for antitrust concerns by Massachusetts Attorney General Martha Coakley. Her office said the deal presents no areas of competitive concern since Mapfre does not have a significant business presence in Massachusetts and does not compete against Commerce or other carriers in the state in auto and homeowner insurance.

Mapfre has said it will pay the consideration entirely in cash, which it plans to finance through an equity capital raising, the issuance of bonds and internal resources.

The transaction allows Mapfre to widen its geographical reach; reinforce its distribution network and management capabilities in the U.S.; and diversify its currency exposure.

After the consolidation of Commerce’s businesses, Mapfre’s activities in the U.S. will represent close to 10 percent of the total premiums of Mapfre.

At year end 2006, Mapfre generated total revenues of $17.7 billion and has a market capitalization in excess of $11 billion. Present in 40 countries, Mapfre is the leading insurer in Spain. In non-life insurance, it ranks as the largest group in Latin America and the tenth largest in Europe.

Mapfre started operations in the United States in 1993 and is currently operating in Florida, New Jersey and Puerto Rico. It has roadside assistance operations throughout the country.

Commerce is ranked as the 20th largest personal automobile insurance group in the country by A.M. Best Co., based on 2006 direct written premium information. It recorded gross written premiums of $1.963 billion and net earnings of $241.5 million in 2006, with a combined ratio below the U.S. average (89.1%).

Commerce is the leading writer of personal insurance lines in Massachusetts, where it holds a 32 percent market share in personal automobile insurance. The insurer has a strategic agreement with the American Automobile Association (AAA) in Massachusetts for exclusive product distribution.

Commerce holds licenses in all 50 states and operates in 17 of them.

Commerce has a total of 1,586 independent agents and 1,152 brokers. The insurer has been listed on the New York Stock Exchange since 1995.

The auto insurance market under which Commerce has prospered in its home state of Massachusetts is undergoing a transition from a highly-regulated system where the state sets prices and only 19 insurers compete to a market where the state hopes to attract additional insurers by giving companies more freedom to set their own prices.

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