First Mercury Financial to Acquire Valiant Insurance Group

First Mercury Financial Corp., the holding company for speciality commercial insurer First Mercury Insurance Co., said it would pay about $55 million to acquire Valiant Insurance Group Inc. from Bermuda reinsurer Ariel Holdings Ltd.

The move opens the doors for First Mercury, an excess and surplus lines writer, to enter the admitted market, said Ted Camp, chief underwriting officer.

"Valiant comes with 47 admitted states, fully licensed and approved," Camp said. "We view this as a new marketing ability to write certain classes of business that had previously been unavailable to us."

For instance, the company would now be able to write insurance for contractors working on municipal projects, who require that the coverage be on admitted paper. Also, First Mercury will now be able to write marine business, Camp said.

First Mercury said it would use cash from its insurance subsidiaries to complete the transaction.

Also, under the terms of the agreement, Ariel has agreed to provide First Mercury with full protection related to the runoff of Valiant's net loss and loss adjustment expense reserves and unearned premium reserves reflected on the closing date balance sheet.

This gives Valiant a clean slate moving forward, Camp said.

First Mercury said it would retain Valiant's existing underwriting platforms and the underwriting teams, including primary and excess casualty, professional and management liability and marine classes of business.

However, classes of Valiant business that are not consistent with First Mercury's specialty niche underwriting focus will be discontinued, the company said. "We'll be evaluating accounts on a case-by-case basis," Camp said.

Through May 31, 2010, Valiant had about $34 million in gross written premiums. In the 12 months following the closing of the transaction, First Mercury anticipates that Valiant will write about $50 million to $60 million of gross written premiums.

Also, the company said it would reinsure about 66% of Valiant's anticipated gross written premiums going forward.

The acquisition is expected to be accretive to First Mercury's book value per share immediately at closing. First Mercury does not expect the transaction to have a material effect on 2010 earnings and expects the transaction to be modestly accretive to earnings in 2011.

Also, Gary Dubois, president and chief executive officer of Valiant, and Scott Bayer, senior vice president of Valiant, will join First Mercury.

In 2006, First Mercury's parent company, First Mercury Financial Corp., (NYSE: FMR) successfully raised nearly $174 million in capital through an initial public offering, according to BestLink. BestLink provides online access to A.M. Best's Global Insurance & Banking Database.

Ariel Re is one of the so-called Bermuda Class of 2005 -- companies formed in the wake of Hurricanes Katrina, Rita and Wilma. In 2007, Ariel Holdings, via its wholly owned subsidiary Valiant Insurance Group Inc., acquired Valiant Insurance Co. Valiant was purchased as a shell company. In the second half of 2008, Valiant Insurance Group formed a wholly owned subsidiary, Valiant Specialty Insurance Co. to write business on an excess and surplus lines basis nationwide.

Last September, Valiant Insurance Group expanded its New York headquarters by moving to larger offices and hiring additional staff, while also opening a new office in Atlanta (BestWire, Sept. 25, 2009).

Valiant Insurance Co., Ariel Reinsurance Co. and First Mercury Group currently all have Best's Financial Strength Ratings of A- (Excellent).

Shares of First Mercury were trading at $10.52 a share on the afternoon of July 2, down 1.50% from the previous close.

(By Meg Green, senior associate editor, BestWeek: [email protected])