NU Online News Service, Dec. 15, 3:39 p.m. EST

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Investment bank Keefe, Bruyette & Woods (KBW) said mergersand acquisitions accelerated during the 2010 second half,indicating that larger companies with abundant capital are lookingfor "opportunistic growth."

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In its outlook for 2011, KBW said it expects more deals nextyear and highlighted American Safety Insurance, Eastern InsuranceHoldings, Navigators Group Inc. and SeaBright Insurance ascandidates to be targeted.

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Also on the list of targets are notables such as The HanoverInsurance Group, Argo Group, Kingsway Financial Services, OneBeaconInsurance and Chubb Corp.

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Cliff Gallant, managing director of KBW, said it has beenspeculated that Berkshire Hathaway--on KBW's list of potentialbuyers for 2011--would acquire Chubb.

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A spokesman for Chubb said the company does not comment onspeculation.

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Though Mr. Gallant admitted it may be "ambitious" to place somecompanies as possible targets, KBW looked at current book value andbusiness plans to come up with its list.

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"We have a talented team of analysts and we make our guesses,"he said. "Last year if you bought our targets, you had a return of25 percent."

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KBW added that it predicts "the most likely targets are stillsmall- to mid-cap specialty and commercial lines players withniche-market expertise."

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Also on the list of buyers assembled by KBW: TravelersCompanies, Ace Ltd., Flagtsone Reinsurance, Harleysville, MarkelCorp., State Auto Financial, Tower Group and Validus Holdings.

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"These companies have a lot of cash," Mr. Gallant noted.

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He said some companies have the attributes to be on both lists,like Hallmark Financial Services, HCC Insurance Holdings and RLICorp.

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In its look ahead, KBW said the industry is "teetering" on thecusp of the next hard market. Though it is hard to predict whatwould set off such a turn. Mr. Gallant and the analysts involved inthe report pinpoint a "pop in loss cost inflation, another round ofinvestment portfolio losses or a major loss event" as possibletriggers.

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But don't count on the next hard market in 2011, said KBW. Whenit does happen, it "may be disappointing in magnitude" if theoverall economy remains relatively stagnant, thereby halting realgrowth.

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