NU Online News Service, July 6, 3:45 p.m.

First Mercury Financial Corporation announced one its subsidiaries will buy Valiant Insurance Group for roughly $55 million, expanding its ability to write admitted specialty business and allowing it to enter the marine insurance market.

Valiant Insurance Group is the U.S. specialty insurance arm of Bermuda-based Ariel Holdings.

Southfield, Mich.-based First Mercury Corporation, whose operations include excess and surplus lines insurers and producers, said its principal insurance company operation--First Mercury Insurance Company--entered a definitive agreement to acquire Valiant for an amount equal to its anticipated tangible book value at closing.

The closing is expected to occur in fourth-quarter 2010.

Richard H. Smith, chairman, president and chief executive officer of First Mercury said, "For some time, we have been evaluating opportunities to enter the admitted market."

He added, "Valiant provides us with an attractive opportunity to gain admitted licensing, expand our resources in professional and management liability and selected specialty casualty underwriting classes, while adding marine underwriting capabilities to take advantage of improving market conditions in this line."

First Mercury said it will retain the primary and excess casualty, professional and management liability, and marine classes of business of Valiant's existing underwriting platform, and that it intends to retain Valiant's underwriting teams producing these classes of business.

First Mercury said it will not retain classes of Valiant business that are not consistent with its specialty niche underwriting focus.

First Mercury Financial ranked as the 22^nd largest writer of excess and surplus lines business in 2009 with $292.1 million in direct E&S premiums, according to a recent listing of top E&S published by National Underwriter.

New York-based Valiant started operations in 2007 when Bermuda-based Ariel purchased the company as a shell to serve as its platform for a U.S. specialty insurance business.

Ariel is one of the Class of 2005 Bermuda companies set up with $1 billion of capital from private equity investors in the wake of Hurricanes Katrina, Rita and Wilma to capitalize on opportunities in the property-catastrophe reinsurance market.

Through May 31, 2010, gross written premiums for Valiant were approximately $34 million, First Mercury said, adding that in the 12 months following the closing of the transaction, First Mercury anticipates that Valiant will write approximately $50-to-$60 million of gross written premiums.

According to Highline Data, Valiant wrote $54 million in gross premiums in total on a statutory basis in 2009.

First Mercury said it intends to retain only about 33 percent of Valiant's anticipated gross written premiums, while reinsuring the rest, noting that this is consistent with a past practice to prudently use reinsurance on newer lines of business.

First Mercury said it does not expect the Valiant deal to have a material effect on 2010 earnings and expects the transaction to be modestly accretive to earnings in 2011.

BofA Merrill Lynch acted as exclusive financial advisor to First Mercury on the transaction, and McDermott Will & Emery LLP acted as First Mercury's legal advisor.

Aon Benfield Securities Inc. acted as exclusive financial advisor to Ariel on the transaction, and Katten Muchin Rosenman LLP acted as Ariel's legal advisor.

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First Mercury Buying Ariel&#039;s Valiant for $55M

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