Commercial lines prices up 7%; carriers reap benefits of higher renewals

Stock Prices: Commercial lines stock prices were up 7 percent through the first nine months of 2006. In October, insurers reported dramatic changes from 2005 third quarter earnings that were dominated by catastrophe losses and have since reaped the benefits of renewal price increases on Southeastern United States business. The St. Paul Travelers Companies Inc. (NYSE:STA) reported net income of $1.043 billion for the quarter ended Sept. 30, 2006 compared to $162 million for the same quarter in 2005. The company also reported impressive net written premium growth of 4 percent from the prior year quarter. STA contributed the growth to strong retention rates and the aforementioned renewal price increases in the Southeast. CNA Financial Corporation (NYSE:CNA) reported much of the same strong results as St. Paul Travelers and their peers. Net income for the third quarter of 2006 was $311 million compared with $6 million for the same period in 2005. CNA also experienced very healthy growth in premiums. For the nine months ended Sept. 30, 2006, the company had net written premiums of $5.342 billion compared to $5.190 billion for the same period a year ago. Ohio Casualty Corporation (Nasdaq:OCAS) was not as fortunate in the area of premium growth. Net premiums written decreased 2.6 percent from the prior year quarter. The company contributed the premium decrease to lower in-force policy counts and rate reductions in their personal lines segment.

M&A Activity: Only a scattering of commercial lines deals occurred during the third quarter. The largest deal was Royal & Sun Alliance Insurance Group plc finally announcing the sale of its non-core United States business. Arrowpoint Capital Corp., a newly formed Delaware company owned and operated by existing senior management and outside directors of Royal & SunAlliance USA, announced that it entered into a definitive agreement to acquire all R&SA USA business currently owned by Royal & Sun Alliance Insurance Group plc of London. Arrowpoint Capital will be led by R&SA USA President and CEO John Tighe and his senior management team. Arrowpoint Capital management will purchase 100 percent of the interests of Arrowpoint General Partnership, the U.S. holding entity which currently owns the R&SA U.S. business, for $300 million of deferred consideration. With the closing of the transaction, the London Group will contribute $287.5 million of additional capital to the U.S.-regulated entities. Separately, Republic Companies Group Inc. (Nasdaq:RUTX) announced a definitive merger agreement in which a subsidiary of Delek Capital Ltd. would acquire all of the outstanding shares of Republic’s common stock for $20.40 per share in cash. This is a premium of 25.5 percent above the closing price of Republic’s common stock of $15.22 per share on Aug. 3, 2006. Delek Capital is a subsidiary of Delek Group Ltd., a conglomerate domiciled and publicly traded in Israel.

Capital Raising: Allied World Assurance Company Holdings Ltd. (NYSE:AWH) launched its successful IPO in July. The Bermuda-based specialty insurance and reinsurance company raised gross proceeds of $344 million. The net proceeds from the offering will be used to repay a portion of the company’s bank loan and for general corporate purposes.

LMC Capital LLC is a national investment banking firm focused exclusively on the insurance industry. Services include qualified, industry-specific advisory relating to mergers and acquisitions, capital raises and valuations. The firm may be contacted at 704-943-2600, by e-mail at Info@LMCCapital.com or visit the firm’s Web site at www.LMCCapital.com.