Spain’s Mapfre to Buy Mass.-Based Commerce Insurance for $2.2 Billion

October 30, 2007

Spain’s largest insurer, Mapfre S.A., has agreed to buy the Massachusetts-based personal lines insurer The Commerce Group, Inc. for $2.21 billion in cash in a bold move to expand its presence in the U.S. market.

Mapfre, which has more than 250 companies and principally operates in Spain, Europe and Latin America, said it will acquire 100 percent of the share capital of the insurer in the largest investment in its history.

The shareholders of Commerce will receive $36.70 per share, representing a 22.5 percent premium over the average share price of the last 30 days.

Mapfre 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 planned transaction adds an important line of growth through Mapfre International, as it widens the international geographical coverage of its businesses; reinforces its distribution network as well as its management capabilities in the U.S.; and diversifies 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.

According to the company, Webster, Mass.-based Commerce will be merged with a U.S. subsidiary of Mapfre.

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

Mapfre, present in 40 countries, 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. At year end 2006, Mapfre generated total revenues of $17.7 billion and has a market capitalization in excess of $11 billion.

Mapfre said the deal is expected to raise earnings per share for its shareholders from the beginning.

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%). The 2006 net earnings for 2006 were $3.55 per diluted share, and compared to net earnings of $243.9 million or $3.60 per diluted share for 2005.

Commerce is the leading writer of personal insurance lines in the state of Massachusetts, where it holds a 31.5 percent market share in personal automobile insurance. Commerce is currently involved in an expansion plan into other states. It 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 and has close to 2,200 employees.

Commerce began operating in Massachusetts in 1971 and has ranked as the largest personal auto insurer in the state since 1990. Commerce has, among others, a strategic agreement with the American Automobile Association (AAA) in Massachusetts for exclusive product distribution, which was recently renewed for a period of 20 years.

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.

Commerce’s property and casualty insurance subsidiaries include The Commerce Insurance Co. and Citation Insurance Co. in Massachusetts, Commerce West Insurance Co. in California, American Commerce Insurance Co. in Ohio, and State-Wide Insurance Co. in New York.

The acquisition is subject to regulatory and Commerce shareholder approvals.

Sources:
Commerce Insurance
www.commerceinsurance.com

Mapfre
www.mapfre.com

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