Argo Group, Philadelphia Buy Program Managers

Argo said the move expanded the company's public entity footprint into New England.

Trident and Massamont will operate under their current names led by Hilbert "Van" Schenck II, who assumes the role of president of Trident while continuing as Massamont president. He fills the Trident position previously held by Michael Arledge, who was promoted to president of Argonaut Select Markets, the Argo Group business segment that includes Trident and Massamont.

Philadelphia, which said it already offers products for campgrounds, RV parks, and guides and outfitters, will now also provide insurance for fishing and hunting lodges, resorts and lodges, dude and guest ranches, hunting preserves, rod and gun clubs, hunting leases, bed and breakfasts, shooting ranges, whitewater rafting, ATV and snowmobile tours, as well as trap, skeet and sporting clay ranges.

In a statement, James Maguire, president and chief executive officer of Philadelphia Consolidated, noted that Gillingham has been a market leader in outdoor recreation and hospitality insurance since 1991. "With approximately $50 million on inforce premium, the acquisition…presents a unique opportunity to…strengthen our position in this growing market segment," he said.

At Argo, the new partnership will expand operations from San Antonio, Texas–Trident's headquarters–to include Massamont's Boston headquarters and offices in Greenfield, Mass., and Chicago.

Argo said Massamont has 20 years experience in the public entity business and will add to Argo Group's Select Markets product portfolio with additional automobile specialty programs. Combining the MGAs nearly doubles the employee count to 162 and will boost gross written premium by 65 percent, the company said.

During a recent interview, Mr. Arledge told National Underwriter, "The Massamont acquisition is a clear indication of Argo's intent to achieve or sustain leadership within its various specialty practices."

"Massamont enjoys a dominant market position in New England with its public entity property-casualty practice." The integration of Massamont with Argo's public entity practice "makes the new combined entity a leader in the commercial insurance arena for this specialty and sets the stage for continued profitable growth," according to Mr. Arledge.

But while moving into new markets is always attractive, the Massamont deal also allowed Argo to expand its own knowledge base, he said. In addition to providing a gateway into New England, the Massamont acquisition "brings additional leadership to Argo and deepens our core underwriting, claims and loss control expertise," Mr. Arledge said.

Speaking about acquisitions generally, Mr. Arledge said the issue of corporate culture is a major factor in sizing up potential deals for Argo Group–and one that can be decisive in determining whether to go forward with a proposed deal.

"The number-one characteristic we look for is a mutually compatible culture that is already in alignment with our vision and values," he said. "Without that being a 100 percent match, we really don't need to go much further."

In the case of Massamont, he said the two companies appeared from the beginning as a perfect fit culturally while allowing Argonaut the opportunity to expand into the New England markets.

"It's remarkable that both operations, though miles apart, have the same level of commitment to specialization and focus on client needs, and strive to provide a total solution for the end users," he said. "At the same time all of these similarities were determined, it became an extremely good fit from a geographic perspective."

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MORE M&A NEWS

In February, Meadowbrook Insurance Group Inc. and ProCentury Corporation announced a merger agreement valued at roughly $272.6 million in cash and stock to be paid to ProCentury shareholders.

The intent of the deal is to create a diversified platform with size and product depth to "compete at a level that couldn't be achieved separately," said Robert Cubbin, chief executive officer of Southfield, Mich.-based Meadowbrook, during a conference call announcing the deal.

In 2007, Meadowbrook recorded gross written premiums of $346.5 million and Columbus, Ohio-based ProCentury wrote $238.3 million, the companies reported.

Meadowbrook expects to see "significant revenue enhancement opportunities" from the deal along with increased earnings, book value and an expanded return on average equity, Mr. Cubbin said. "The acquisition will expand and complement Meadowbrook's specialty lines capabilities with ProCentury's insurance professionals and product expertise in the excess and surplus lines market."

ProCentury CEO Edward Feighan said, "ProCentury and Meadowbrook are quite similar in many ways," noting that both companies are small and publicly traded and have teams that are "uniquely talented" to the markets they serve. Those similarities helped bring the two together, "but the real opportunities lie in the differences between the complementary capabilities of our companies," he said.

"The most apparent example of this lies in our respective product offerings, in our marketing and distribution networks. The combined company will now have an established presence in both the admitted and surplus lines markets, and will have national access to an extraordinary set of wholesale general agencies, brokerages and retail agencies," said Mr. Feighan, who will be leaving the company when the deal is completed.

Ken Billingsley, a senior research analyst at the Baltimore office of Signal Hill Capital Group LLC, said the fact that there "isn't a lot of overlap" means there won't be significant cost savings achieved from merging the two operations.

Meadowbrook, he said, has focused in the workers' compensation area, while ProCentury has been in the realm of specialty E&S with some property business as well. "Of course, that could be a good thing," he said, adding that the combination creates a "stronger overall company."

Although investors should expect immediate costs cutting, Mr. Billingsley advised they should "be patient and let the multiple rise."

In fact, Mr. Billingsley said he would become concerned if Meadowbrook sought to push the issue of cost cutting by changing the underwriting system used at ProCentury.

Describing the underwriting process, he said that while ProCentury does give agents the authority to underwrite risks within guidelines, the company also re-underwrites the risk when it comes in their door. "They spend money upfront to prevent future losses," he said, adding that Meadowbrook is getting "the credibility of ProCentury," in the deal. He added that his "biggest concern" would be if Meadowbrook were to try and cut costs in this area.

During the call, Mr. Cubbin indicated that Meadowbrook would see some cost cutting from being only one publicly traded company rather than two, but would also look at the use of technology to enhance their distribution more efficiently.

"ProCentury has some very, very good technology, as does Meadowbrook. I think they will complement each other in that regard. But it will take us some time to determine exactly what those cost savings would actually be."

While the deal promises growth for the future, Mr. Billingsley noted that, in his view, ProCentury shareholders did not receive as great a premium as he believed they could have. While the investors did get a premium based on the share price of the day before the acquisition, Mr. Billingsley said that Signal Hill believes the company, and specialty insurers in general, are trading below their actual value at the moment.

"Specialty insurers," he said, "are trading at severe discounts."

Effectively, Mr. Billingsley said he believed that specialty insurers are suffering the effects of investors' caution toward financial companies in general.

"Investors are concerned about the health of the financial industry," he said, and underwriters have been rolled up under that scrutiny," even if they are a far better risk for investors than other areas in the financial services arena.

"It's surprising, because no one expects the property and casualty industry to go away," he said. "Even if your house loses value, you still need insurance."

In mid-March, Richmond, Va.-based Max Specialty Insurance Company, the U.S. E&S unit of Bermuda-based Max Capital Group Ltd., announced that it agreed to buy Indiana-based Commercial Guaranty Casualty Insurance, a unit of Travelers Indemnity Company.

Terms for purchasing the firm, which will serve as a shell company allowing Max to extend admitted operations into all 50 states, were not announced.

The company said that upon completion of the transaction, which is subject to regulatory approval, Max Specialty's underwriting team will be able to write both admitted and nonadmitted business.

Max Specialty said the acquired operation will primarily support its team's previously announced entry into inland and ocean marine underwriting.

Max Specialty Insurance Company, the nonadmitted company, is licensed in Delaware and currently approved in 46 other states.

Stephen J. Vaccaro Jr., Max Specialty Insurance Company president and chief executive officer, said: "This acquisition will give the Max Specialty team the ability to write business on a nationwide basis. We expect that ability to enable our producers to write more business for more customers, as some of our specialty products are best served in the admitted marketplace."

Max Capital Group Ltd., through its operating subsidiaries, provides specialty insurance and reinsurance products to corporations, public entities, property and casualty insurers, and life and health insurers.

(Max Specialty deal reported by Dan Hays.)