Tokio Marine to Acquire Philadelphia Insurance for $4.7 Billion

July 23, 2008

Japan’s Tokio Marine Holdings, Inc. reported that it has agreed to acquire all outstanding shares of Philadelphia Consolidated, a U.S. property/casualty insurance company offering specialty commercial property and casualty insurance to targeted markets.

The total transaction value is approximately $4.7 billion. It is considered the biggest acquisition of a U.S. company by a Japanese financial firm.

Tokio Marine said it will pay $61.50 per share in cash, through TMHD’s wholly owned subsidiary, Tokio Marine & Nichido Fire Insurance Co., Ltd.

The transaction is expected to close in the fourth quarter of 2008.

The acquisition of Philadelphia Consolidated marks a significant expansion into the U.S. market and complements Tokio Marine’s recent international growth initiatives.

Philadelphia Consolidated, whose subsidiaries include Philadelphia Insurance, has 47 offices and approximately 1,400 employees across the U.S.

“Expansion of revenue and profits from international business is the driving force of Tokio Marine’s mid to long term growth strategy,” said Shuzo Sumi, president of Tokio Marine. “The acquisition of Philadelphia Consolidated is consistent with our aspirations of expanding globally and realizing a well-balanced business portfolio.”

In March, Tokio Marine completed the acquisition of London-based Kiln, a major Lloyd’s insurer.

James J. Maguire, chairman of Philadelphia Consolidated, said that his executive management team and he will be making a “substantial investment in TMHD’s stock” after closing of the transaction, and he will become a member of the International Strategic Committee of Tokio Marine.

James J. Maguire, Jr., CEO of Philadelphia Consolidated, said his management team is “fully committed to the successful growth of the business.” He said the overall financial strength of Tokio Marine and Philadelphia will open up additional avenues of expansion.

The officials said that the profits/losses of Philadelphia Consolidated will be consolidated into TMHD’s financial statements from fiscal year 2009 and will deliver greater earnings consistency throughout the insurance pricing cycle. If Philadelphia Consolidated were included in TMHD’s 2008 financial statements on a pro forma basis, the adjusted earnings of Tokio Marine’s international business would have increased by approximately 95 percent from JPY31.7 billion (approximately $300 million) to approximately JPY62 billion (approximately $580 million).

Philadelphia Consolidated Holding Corp. through its subsidiaries, designs and underwrites commercial property/casualty, professional liability and personal lines insurance products for select industries or niches including, among others, nonprofit organizations; the health, fitness and wellness industry; select classes of professional liability; the rental car industry; automobile leasing industry; and personal property and casualty insurance products for the homeowners and manufactured housing markets.

Philadelphia markets through a group of “preferred agents” and a broader network of independent agents.

The company is primarily a commercial lines writer; its personal lines business is currently in runoff mode.

Philadelphia Consolidated Holding Corp.’s commercial lines subsidiaries are rated A+ (Superior) by A.M. Best Co. and A1 for insurance financial strength by Moody’s Investors Service. Its personal lines insurance subsidiaries (Liberty American Insurance Group) are rated A-(Excellent) by A. M. Best Co.

Its subsidiaries include Philadelphia Indemnity Insurance Co., a Pennsylvania-domiciled property/casualty insurer; Philadelphia Insurance Co., a surplus lines insurer; Liberty American Select Insurance Co., a personal lines company for the Florida homeowners and manufactured housing markets that is also licensed as an admitted carrier in 10 other states; Liberty American Insurance Co., a Florida domiciled company for the homeowners and the manufactured housing markets which is licensed as an admitted carrier in Florida; Maguire Insurance Agency, Inc., a captive underwriting manager that produces insurance primarily for the account of the company’s insurance subsidiaries, and Liberty American Insurance Services, Inc., a managing general agency domiciled in Florida that produces personal lines insurance primarily for the homeowners and manufactured housing market in Florida.

It is a member of Ward’s Top 50, Forbes’ Platinum 400 list of America’s Best Big Companies and Forbes’ 100 Best Mid-Cap Stocks in America.

For 2007, Philadelphia Consolidated reported total revenues increased 22 percent to $1.53 billion. Net earned premiums were $1.38 billion, up 18 percent from 2006. Net income increased 13 percent to $326.8 million.

It also reported a 74.8 percent combined ratio and an after tax return on equity near 23 percent for 2007.

The officials said that the boards of directors of both companies have unanimously approved the transaction and key family shareholders representing approximately 18 percent of Philadelphia Consolidated’s outstanding shares have agreed to vote in favor of the transaction. The acquisition is subject to the approval of Philadelphia Consolidated shareholders and the approval of various regulatory authorities in Japan and the U.S., as well as other customary closing conditions.

Sources: Tokio Marine
PHLY

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