Markel Buys Niche Workers’ Comp Group Aspen Holdings for $135 Million

Markel Corp. is acquiring Aspen Holdings Inc. for about $135 million in cash, plus the value relating to certain outstanding Aspen stock options at closing.

Aspen is a privately held insurance group that provides workers' compensation insurance and related services, mainly to small businesses, in 31 states, Markel said (NYSE: MKL). It operates primarily through FirstComp Insurance Co., a Nebraska-domiciled insurance company; FirstComp Underwriters Group, Inc. and FirstComp Insurance Agency Inc., which act as managing general agents; and REX Inc., which operates as a wholesale intermediary.

Bruce Kay, managing director of investor relations for Markel, said the company was attracted to Aspen because of the characteristics of the insureds -- employers with few employees. "That's our niche -- small businesses," he said.

"We're absolutely not interested in workers' comp as a class," Kay said. "It's about this company's ability to make money in a niche. There's got to be a specialty twist that leads us to believe we can make an underwriting profit."

Markel will benefit from cross-selling opportunities, Kay said, noting Aspen's "state-of-the-art" technology platform, which enables it to quote, bind and issue more than 100,000 policies annually. Not only does Markel have a number of products aimed at small businesses, it also has "a lot of accounts that could use the comp coverage offered through Aspen," Kay said.

He also noted there are future potential growth opportunities in the small business market as the economy recovers.

"This transaction presents an excellent opportunity for Markel to use its financial strength to allow Aspen to increase its penetration in the states where it currently operates, expand geographically and retain a greater share of the business it generates over time," said Mike Crowley, Markel's president and co-chief operating officer, in a statement.

Following the acquisition, Aspen will continue to operate as a separate business unit, with Luke Yeransian, Aspen's current chief executive officer, as president. The operating unit will be part of Markel's specialty admitted segment, headed by Crowley. The deal is expected to close before year-end.

In the deal, Aspen's shareholders will also receive contingent value rights that may result in the payment of additional cash consideration depending, among other things, upon the development of Aspen's loss reserves and loss sensitive profit commissions over time, according to Markel.

Aspen's subsidiaries collectively underwrite more than $300 million of gross written premium annually, according to Markel. They operate through a network of more than 9,000 retail agents and have more than 500 employees based in Nebraska, Rhode Island, Nevada, California and Florida.

FirstComp provides workers' compensation insurance to under-served rural markets in states with favorable legal and economic environments, according to BestLink, which provides online access to A.M. Best's Global Insurance & Banking Database. FirstComp had 2009 net premiums written of $105.1 million, up from $98.8 million in the prior year. However, pretax operating income fell to a loss of $4.1 million in 2009, from a profit of $254,000 in 2008, according to BestLink.

Markel Corp. markets and underwrites specialty insurance products and programs to a variety of niche markets.

On the afternoon of July 15, shares of Markel were trading at $350.20, down 0.49% from the previous close.

Members of the Markel Corporation Group currently have Best's Financial Strength Ratings of A (Excellent).

(By Rick Cornejo, managing editor, BestWeek: [email protected])