Specialty Market M&A Activity Heats Up

From Midland's perspective, John W. Hayden, president and CEO of Midland, said joining forces with one of the largest reinsurance companies in the world would allow the Cincinnati-based specialty insurer to expand in ways it would not have been able to without Munich Re's resources.

In addition to manufactured housing and motor homes, Midland–through its principal subsidiary, American Modern Insurance Group–provides specialty coverage for motorcycles, watercraft, snowmobiles and recreational vehicles, and physical damage on long-haul trucks, among other things.

Continuing a separate conquest of U.S. companies, QBE Holdings Inc. (a subsidiary of QBE Insurance Group Ltd., a Sydney, Australia-based property-casualty insurer), announced a much smaller deal–a $146 million purchase in early January of North Pointe Holdings Corp., a Michigan-based specialty insurer that counts bowling centers and skating rinks among its underwriting niches.

For QBE, the North Pointe acquisition followed two much larger deals struck–for Winterthur U.S. and Praetorian–in 2007.

In June 2007, QBE announced that it completed the acquisitions of Winterthur (a regional p-c insurer of small and midsized business written through independent agents), and Praetorian (a specialty program business writer) for a total purchase price of $2.5 billion, adding roughly $2.8 billion in gross premiums to its books.

In a statement, James Petcoff, president and CEO of North Pointe, noted QBE's intention to actively build out its U.S. specialty insurance platform. In a separate statement, Tim Kenny, president and CEO of QBE the Americas, said the deal increased QBE's distribution through independent agents.

Bermuda companies were also among the non-U.S. invaders of the U.S. specialty market recently, but most deals amounted to shell collecting, with acquirers finding dormant entities to help build out U.S. E&S platforms.

Last year, Montpelier bought General Agents Insurance Company of America and Ariel Re bought Valiant Insurance from Zurich North America. In addition, Ironshore tapped E&S shell TIG Specialty in early this year.

Montpelier US (a Hartford-based subsidiary of Montpelier Re Holdings Ltd.), completed the deal for General Agents Insurance Company in January, acquiring an admitted insurer licensed in Oklahoma from Dallas-based GAINSCO.

The acquired company, which will be renamed Montpelier US Insurance Company (MUSIC) with underwriting operations based in Scottsdale, Ariz., is also authorized as an E&S insurer in 37 states.

Ironshore completed the acquisition of TIG Specialty from TIG Insurance Company, the runoff property of Toronto-based Fairfax Financial Holdings Ltd. in January. The acquired company, which will be renamed Ironshore Specialty Insurance Company (ISIC), is authorized to write E&S business in 40 states plus the District of Columbia.

"Having just recently closed on our admitted shell, Ironshore Indemnity Inc., we are very excited to launch Ironshore Specialty Insurance Company and to increase our available product offerings in the United States," said Mike Mitrovic, president of ISIC, referring to an November 2007 deal to buy Stockbridge Insurance Company, a U.S.-based admitted insurance company renamed Ironshore Indemnity, from Folksamerica Reinsurance Company.

Ironshore's initial market profile included property-catastrophe and property all-risk coverage for small to midsized commercial risks.

With the launch of IronPro in May 2007 and IronBuilt in October 2007, Ironshore expanded its platform into the professional liability and construction specialty market sectors. The plan is to have Ironshore Specialty and Ironshore Indemnity serve as the carriers for Ironshore's U.S. operations in those two specialty sectors.

The biggest deal announcement out of Bermuda came in mid-December, when ACE Ltd. said it would buy Combined Insurance Company of America from Aon for $2.4 billion, acquiring in the deal an underwriter of specialty individual accident and supplemental health insurance products distributed by captive agents in the United States and 10 other global markets.

Continuing its development of a U.S-based E&S platform, a month earlier Bermuda-based Max Capital Group Ltd. announced the formation of Max Managers USA Ltd., a New York-based managing general underwriter to underwrite policies written by Max Specialty Insurance Company, its U.S. E&S carrier.

Max Managers USA will initially focus on underwriting casualty insurance policies for clients in the health care industry, with the expectation that offerings aimed at other industries will be added over time.

Moving in the opposite direction, several U.S.-based specialty insurers sought to grow internationally, including Cincinnati-based American Financial Group, which announced in December that it would become the majority shareholder in Marketform Group Limited, a Lloyd's insurer that focuses on specialty p-c insurance products outside the United States and is a market leader in the non-U.S. medical malpractice market.

Under the agreement, American Financial Group will pay roughly $75 million to effectively own about 67 percent of Marketform. This deal is expected to add $150 million to American Financial's gross written premiums in 2008.

In an earlier December deal, American Financial Group also agreed to buy Strategic Comp Holdings, LLC of Metairie, La., a provider of workers' compensation programs offering a combination of loss control, intensive claims management and deductible-based options for midsize to large commercial accounts that wrote roughly $30 million in premiums in 2007.

In Houston, HCC Insurance Holdings Inc. revealed in January that it had acquired Indianapolis, Ind.-based MultiNational Underwriters, LLC, and that it also received approval for new Lloyd's syndicate.

MultiNational Underwriters offers life, accident and health insurance coverage to customers in more than 130 countries.

According to HCC, MultiNational's clients include U.S. citizens traveling or residing outside the country, U.S. corporations with employees and their families traveling or residing abroad, foreign nationals and the employees of foreign companies outside their home countries, missionary organizations, and institutions of higher education with foreign programs.

The acquired company is expected to write more than $40 million in premium in 2008, HCC said. In conjunction with the acquisition, HCC noted it has received approval from Lloyd's–effective Jan. 1, 2008–to set up Lloyd's Syndicate 4141. The syndicate will initially write MultiNational Underwriters' international accident and health insurance, and then write other selected lines of business in the future.

In a statement, HCC CEO Frank J. Bramanti highlighted innovative approaches MultiNational Underwriters brings to HCC, noting that the acquired company uses the Internet as a vehicle for offering 24-hour-a-day insurance services worldwide.

In a deal that promises growth for its independent agents with business within U.S. borders, Worcester, Mass.-based Hanover Insurance Group Inc. announced it has agreed to acquire Verlan Holdings Inc. in mid-January.

Silver Spring, Md.-based Verlan Holdings Inc. provides insurance to manufacturers and distributors of chemical-related products–a niche it has served for nearly 40 years.

The firm's primary business, Verlan Fire Insurance Company, offers property coverage to small and medium-sized companies that manufacture, store, transport and use chemicals such as paints and solvents.

A second subsidiary, Coatings Industry Services, is a program manager and wholesaler serving independent agents and brokers whose industrial customers require access to specialized general liability, pollution, umbrella, property and commercial auto coverages, specializing in chemical and environmental exposures.

Not to be outdone by underwriters, brokers also continue to put together deals in the specialty insurance space.

In January, Atlanta-based wholesale insurance brokerage Swett & Crawford Group said it acquired another wholesale brokerage, Risk Reducers, LLC, a workers' compensation specialist, while retailer A.J. Gallagher & Co. picked up AVRECO, a wholesale insurance broker and managing general agent from The Park Group. Neither disclosed financial terms of the deals.

Commenting on his firm's acquisition, Swett & Crawford CEO J. Neal Abernathy said Risk Reducers has built strong relationships with carriers and retail agents, adding that Swett believes it "can help expand on those relationships and accelerate growth."

M. Keith Kimbro, CEO and co-founder of Risk Reducers, said Swett's national network of retail agents and high-quality employee base of brokers and underwriters will give his company the distribution needed to further develop its workers' comp platform.

He added that Swett's broad carrier relationships and product offerings will enable Risk Reducers "to instantly provide more options to [its] existing agent base without compromising…service."

Swett noted that besides workers' comp, Little Rock, Ark.-based Risk Reducers also writes specialized p-c insurance for the transportation, manufacturing and contractor segments in the Midwest and Southeast, offering commercial auto and occupational accident insurance products as well.

Commenting on his firm's acquisition, J. Patrick Gallagher Jr. highlighted AVRECO's "team-based approach to service," extensive and unique brokering capabilities, and specialization strategy.

Chicago-based AVRECO, with a significant medical malpractice and professional liability department, also offers nonprofit and for-profit D&O, as well as property coverage for large accounts and packages, general casualty and excess liability throughout the United States.

William Yurek, president of AVRECO, and 35 associates will continue to operate from their current locations in Chicago and San Diego under the direction of Joel Cavaness, president of Risk Placement Services Inc., a subsidiary of Gallagher.

In February, Mercator Risk Services, a New York-based specialty wholesale insurance broker, announced that it has acquired the Tennant Risk Services Insurance Agency in Hartford, Conn.

While financial information concerning the transaction was not disclosed, Tennant did say that Tennant/Mercator's combined premiums in 2007 were $100 million.

Tennant is a wholesale broker and underwriting manager specializing in a range of professional and management liability coverages, including errors and omissions, D&O, employment practices liability, architects and engineers, medical malpractice and cyber liability.

Mercator said Tennant currently has 16 employees who will become Mercator's Hartford office and that Tennant President Robert Sargent will become executive vice president of Mercator but remain in Hartford to run that office.

Dan Hays and Mark Ruquet contributed to this M&A roundup report.