New Mexico’s Mountain States Mutual to Merge with Donegal Mutual

December 21, 2016

New Mexico’s Mountain States Mutual Casualty Co. is merging into Pennsylvania-based Donegal Mutual Insurance Co., the insurers announced.

Donegal Mutual will be the surviving company in the merger, and Mountain States’ insurance subsidiaries, Mountain States Indemnity Co. and Mountain States Commercial Insurance Co., will become insurance subsidiaries of Donegal Mutual.

The affiliation is subject to regulatory approvals and the approval of the policyholders of Mountain States. The parties expect to close on the deal in the first half of 2017.

Mountain States and its insurance subsidiaries currently conduct business together as the Mountain States Insurance Group in the states of Colorado, New Mexico, Texas and Utah.

Upon consummation of the merger, Donegal Mutual plans to enter into quota share reinsurance, services and technology license agreements with Mountain States’ insurance subsidiaries with the intent of making those subsidiaries eligible for A.M. Best Co.’s assignment of Donegal Mutual’s group rating of A (Excellent) to those subsidiaries and reducing operating costs of those subsidiaries through economies of scale.

Donegal Mutual and those insurance subsidiaries will market their products together as the Mountain States Insurance Group in the Southwestern region.

The executive officers of Mountain States will become officers of Donegal Mutual and will retain their current responsibilities in the current Albuquerque, New Mexico headquarters of the Mountain States Insurance Group.

William F. Davis, president of Mountain States, said that the merger and the related transactions will enable the Mountain States Insurance Group to enhance its competitive position within its property/casualty insurance markets.

Donegal Mutual will bring management assistance, as well as operational and technology resources that should help Mountain States improve its underwriting profitability and grow its business, according to the announcement.

The Mountain States board of directors has unanimously approved the merger.

The proposed affiliation affords Donegal Mutual an opportunity to expand its business into the Southwestern region, where it currently has no operations.

Donald H. Nikolaus, president of Donegal Mutual, said the deal will enable the Mountain States to deliver enhanced products and services to its agents and policyholders.

Mountain States was formed in 1937 and writes commercial lines of insurance in Colorado, New Mexico, Texas and Utah. The Mountain States Insurance Group had net premiums written of $42.3 million in 2015.

Donegal Mutual and the insurance subsidiaries of Donegal Group Inc. sell personal and commercial property/ casualty insurance in 21 Mid-Atlantic, Midwestern, New England and Southern states and had net premiums written of $738.7 million in 2015.

A.M. Best has commented that the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Ratings of “a” of the members of Donegal Insurance Group remain unchanged following the recent affiliation announcement.

A.M. Best said the outlook of the credit ratings for the members of Donegal remains stable.

A.M. Best said Donegal’s ratings remain unchanged “due to the expectation that the affiliation of Mountain States will not have a material impact on the balance sheet strength or earnings of Donegal.”

As for Mountain States, A.M. Best has placed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Ratings of “bbb+” of the members of Mountain States Insurance Group under review with positive implications.

For an indefinite period of time following the consummation of the affiliation, Donegal Mutual said it will exclude the business of the Mountain States Insurance Group from its pooling agreement with Atlantic States Insurance Co., according to the announcement.

Donegal has grown extensively through acquisitions since the 1990s. Among its acquisitions have been Delaware Atlantic, Pioneer Insurance, Southern Heritage, Le Mars Insurance, Peninsula Insurance, Sheboygan Falls Mutual, Southern Mutual and Michigan Insurance.

Donegal officials said they expect to continue to acquire other insurance companies over time to expand their business.

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