Boston-based insurer Liberty Mutual has sold off its middle market direct sale renewal business to three major insurance brokers and at the same time retired the Wausau brand, creating a new commercial business unit to work with independent agents.

Full financial terms were not detailed, but one of the brokers, Arthur J. Gallagher, said its portion of the deal could eventually total $164 million.

Liberty said it will now distribute its middle market commercial property-casualty business through agents and brokers through a new business unit, Liberty Mutual Middle Market.

In addition to the Itasca, Ill.-based Gallagher firm, the company sold the policy renewal rights of its direct sell operations to Hub International, based in Chicago, and USI Holdings Corp., headquartered in Briarcliff Manor, N.Y. The transactions are expected to close on or around March 1, the company said.

Previously, Liberty Mutual said it sold its middle market business through appointed agents and brokers under Wausau Insurance Company, which has been a wholly owned subsidiary of the insurer since 1999. The company also sold direct to clients through its "Business Markets" unit. The deal sells off both distribution entities, a spokesman said.

In an interview with National Underwriter, J. Paul Condrin, president of Liberty Mutual's Commercial Markets, said the deal involves a total of $2.5 billion in premium. He said the company made its decision because its mid-market business was not growing in a field dominated by independent agents and brokers offering risk management services to the chief executive buyers who rely on firms for their risk management expertise.

"This is clearly a strategic move for us, not a financial play," said Mr. Condrin. "There is a pent up demand for our product and our brand, and we think the best way to satisfy that demand is by going into the independent broker business and closing down the direct."

He added that Liberty Mutual is very interested in forming additional relationships with agents and brokers outside of the three major brokers it did the deal with.

The company said all three brokers have extended offers of employment to many of the sales and service employees who worked on the accounts for Liberty Mutual. A company spokesman said there would be little net job loss as employees either move within the company, remain with the new division, or would be hired by one of the three brokerage firms.

"Today's announcement reinforces our commitment to being a leader in commercial insurance," said Edmund Kelly, Liberty Mutual Group chairman, president and chief executive officer.

"The agreements with Gallagher, Hub and USI speak to the quality of our business and desire to form strong, mutually beneficial relationships with agents and brokers who have earned outstanding reputations among middle market buyers," Mr. Kelly added.

In their own announcements, USI and Hub, which are owned by private equity funds, did not release any terms.

However, Arthur J. Gallagher said it would make an initial payment of $44 million in cash and stock. It would make additional payments in cash or stock based on revenues generated in the two-year period beginning twelve months after the closing. The maximum amount of the additional payments is $120 million.

Gallagher said it agreed to purchase Liberty Mutual's business in the Midwest and Southeast regions and would hire 75 Liberty Mutual producers. The company said it plans to add approximately 120 new insurance sales professionals.

In a separate statement, J. Patrick Gallagher Jr., chairman, president and CEO of Gallagher, called the deal an extraordinary opportunity, saying, "This strategic combination will give us great growth potential, increase our client capabilities and strengthen our middle market presence."

USI said it intended to hire approximately 76 Liberty Mutual insurance professionals, about 44 of them sales producers, in the Northeast region of Liberty Mutual's business.

"The Liberty Mutual insurance sales and service professionals we intend to hire as part of this transaction represent a great complement to our existing presence in the New England and Northeast region," said Michael J. Sicard, USI's chairman, president and CEO.

Martin P. Hughes, chairman and CEO of Hub, called it "an ideal fit for us." A company spokesman said it plans to hire 80 Liberty Mutual employees and add $350 million in premium to its books. The company said it is acquiring the Western region middle market business of Liberty Mutual that encompasses Arizona, Arkansas, California, Colorado, Hawaii, Kansas, Louisiana, Nebraska, Oklahoma, Utah and Texas.

(This story was updated on Jan. 26 at 3:27 p.m.)

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Liberty Mutual Sells Off Mid-Market Direct Sale Renewals

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